The school house provides citizens with education, which in turn increases how effective a citizen is at given tasks. For example, a woodcutter is able to get more logs from a single tree than a woodcutter that is uneducated. It can take a few years for children to finish school and end up as educated citizens. Overall, educated workers produce more food, gather materials and craft goods faster.
Build your first school house just after you build your 3rd or 4th house. The children being born will grow up to be educated.
Construction of the School House requires: