Happily means with joy or pleasure. It describes a feeling or emotional state.
Gradually means slowly and steadily, over a period of time. It describes a process or change.
Here are some examples to illustrate the difference:
* Happily: "They were happily married."
* Gradually: "The sun was gradually setting."
In summary:
* Happily describes an emotional state.
* Gradually describes a process or change.