The atmosphere of a planet plays a major role in habitability, affecting your people's happiness and health.

An Oxygen atmosphere is perfect. It is not a pure oxygen atmosphere, but is instead the perfect combination of gases for human survival. There is no effect on a colony's happiness or healthiness. However, weather impacts are much greater on Oxygen worlds, as people are more likely to toil outside.

A Carbon Dioxide atmosphere has much more Carbon Dioxide than humans are used to breathing. This type of atmosphere causes numerous health problems and minor happiness problems.

A total lack of atmosphere, meaning colonists are not allowed to leave their colony, causes only minor health problems but also causes more unhappiness than a Carbon Dioxide atmosphere.

Acidic atmosphere corrodes your habitats and protection suits, as such causes much health and happiness problems.

Hydrogen atmospheres do not combine well with the oxygen your people breathe. It is a dangerous explosive mix.

Nitrogen in overabundance is comparable to no atmosphere at all. It does nothing terrible, but too much of it means the air lacks the oxygen that we need.

A Terraformer can be used to change the atmosphere type, thus reducing the penalties to health, happiness, and habitability.

Atmosphere is composed of 5 primary gasses and atmospheric density.
The gasses are Oxygen, Nitrogen, Carbon Dioxide, Hydrogen, and Argon.
Based on these gasses and the atmospheric density the atmosphere is defined as Oxygen, CO2, Acidic, None, Nitrogen, Hydrogen, or Alien. Alien simply means it is something that doesn't match the other classifications.

Oxygen is the "good" gas. We breathe it, we use it to burn stuff.
Below 15% oxygen is generally unbreathable. Many humans can tolerate levels as low as 10% for a period of time, but we need to define a level that almost everyone can tolerate, which is 15%.
Oxygen also has an upper limit of what is safe to have in the atmosphere. We can breathe 100% oxygen just fine for extended periods of time and breathing something like 40% is perfectly sustainable. However, above 22% oxygen things get volatile, becoming quite dangerous at 25%. The oils on your skin could randomly combust, causing irritation.
21 is ideal

Carbon Dioxide is the "bad" gas. We exhale it and it is released when we burn stuff. Carbon Dioxide should ideally be 0%, only being present in trace amounts. 0.5% is tolerated, but no more than that.
However, if the atmosphere isn't safe then Carbon Dioxide isn't that dangerous. Any leaks in habitation domes can easily be found and patched. It also doesn't mess with any equipment.
Ideal is 0.

Nitrogen is the "filler" gas. Most of earths atmosphere is nitrogen, 78.08% to be exact. There is no such thing as too much atmospheric nitrogen, only not enough oxygen caused by nitrogen displacing the oxygen. There is no shortage of nitrogen either, only too much of other harmful gasses. It is also not reactive enough to cause any serious damage. However, nitrogen can react with various other compounds and form toxic chemicals. This potential toxicity is not currently used in any game mechanics.
Has no ideal value.

Hydrogen is the "dangerous" gas. It is perfectly breathable but can be super explosive. Any leak into the breathable oxygen of the habitation dome will be disastrous. It also plays an important role in corrosion, damaging materials.
Ideal is 0.

Argon is functionally a lot like nitrogen, it doesn't do much. Argon actually represents all noble and chemically inert gasses.
Has no ideal value.

We need the air to be dense enough that the gasses can properly be exchanged in our lungs. When atmospheric density is too low we start to run out of breath. When it is too high our lungs rupture. Additionally, denser atmospheres allow for more volatile reactions between the gasses so even if you're in a protective suit pressure will still be dangerous.
20 is ideal.