As you can probably guess, the death of a Sim has consequences not just for the Sim that dies but for the Sims that they knew and lived with.
The Sim that Dies
The effect upon the Sim that has died are pretty obvious -- they are dead!
In addition though as they die they drop a Life Orb - a Bronze Life Orb of the type that matches their personality type - at the time that this was written that means a Geeky Orb or a Sporty Orb. When they drop the Orb it is your duty to enter the buy/house mode and move the Orb into your Inventory.
The Surviving Sims
The death of any Sim in the household will have an impact on the surviving Sims. For several real-world hours following the death the surviving Sims will experience depression and grief.
In short they must experience a period of grieving for several hours - as they go through a Sims version of the seven stages of grief.
You can help your Sims work through this period by making use of the two new actions that are added to them - Reminiscence and Grieve.