Production refers to gathering, converting, or using any of the game's commodities.
Production is affected by a hex's supply, its efficiency, its capacity in some cases, and loyalty or approval rating. Supply to a hex is a chief limiting factor. Grouping industries near military bases and, to a lesser degree, cities will provide significant boosts to an upgrade's capacity. Note the importance of bases: the construction of a medium or large military base can raise supply 30%. When it is not possible to build near bases, infrastructure from a base or city to the hex will increase supply to a lesser degree.
Capacity affects non-synthetic raw material and hydro dam upgrades. These structures cannot be built higher than the capacity of a terrain hex. Other upgrades, such as industries and powerplants, can be built to 100%. Often, a region will start with factories at less than 100% capacity. The fastest way to ramp up production may be to upgrade these factories (double-click on a factory, click the construction icon. Note that upgrading a factory takes it offline.).
Production of many, mostly finished, commodities requires the consumption of other commodities. Finished goods require multiple raw materials (e.g., ore, petroleum, and coal for industrial goods) and electricity. Consumer Goods and Military Goods are also built from Industrial Goods.
Cities and terrain hexes each have their capacity to produce some commodities. Commodities you will not see produced by any terrain or cities are coal, ore, oil, uranium, and military goods. Commodities that might be produced solely or in significant quantities by terrain are agriculture, water, and timber. As for cities, they may produce consumer goods, industrial goods, and electricity. City energy production can be the cause of significant energy petroleum usage, even when a region has no oil power plants.
Efficiency and investment
Efficiency is affected by Production Investment funding in each commodity's Interior panel. Your Commerce Minister is probably already doing a good job with managing this according to priorities. By default, the Minister has a priority of "Increase Efficiency", and s/he does this by modifying Production Investment. If you want to manually increase investment in key industries you can, though there's a minister priority that may come close: the Commerce Minister's "Target Profitable Industry". If your region has high labor costs, you may wish to shut down an unprofitable industry and manually kill all investment to it.
Expanding an economy
Expanding an economy can cause problems with both short- and long-term with industrial goods usage, raw materials usage, and maintenance costs.
Constructing new facilities requires not only money, but industrial goods. This can be a major bottleneck to players who try to build all at once. If necessary, industrial goods can usually be imported from the World Market. But for long-term or less expensive construction, the player may want to expand their industrial goods factories beforehand. If the industry being expanded is consumer goods or military goods, then it will use industrial goods in its day to day operation anyway.
All finished goods factories and power plants also require raw materials of some kind. ( Exception is Hydrodam wich only rquires that the place to be built is suitable )
Maintenance costs will also add up. Mines, farms, and the like may cost only a few million dollars a year each. But factories can cost over a hundred million dollars a year, and some power plants may cost over five-hundred million.
A major result of sudden expansion in production can be lower unemployment and higher inflation.
War exerts special strains on an economy: upgrades are won and lost, industrial demands are increased, and reservist workers may be called to active duty.
During war--or any time you train many units--your demand for military goods will rise. This will raise demand for i ndustrial goods, coal, petroleum, and ore.
As well, building units (and then deploying them) or calling them to service will take personnel from factories. Unemployment will fall, and inflation will rise.
New territory also has effects on your production. The population in these new territories is less loyal and so works worse than your loyal people. Supply is also probably worse in this territory, at least initially. These can both increase your price per unit. You may also inherit commodity demands that the previous owner couldn't meet. The population also brings with it its own GDP/c, which has important effects on consumer demand.
Upgrades may also be lost by territorial losses or bombing. Be aware of potential shortages in your economy from the loss of one or two upgrades. Inviting targets in any campaign may be power plants and military goods or industrial goods plants. Aside from building more plants, you can protect yourself by either having a large stockpile of cash to import goods, or having a large stockpile of those goods themselves. There are some Commerce Department minister priorities relevant here, named "Stockpile such and such".
Numerous research technologies will boost an upgrade's rate of production, or reduce its raw material needs, or in some other way make it more effective. Even further effects can be had by improving supply. This is a brief list of some production technologies; for supply technologies, see its article.
Industrial production can be boosted significantly by Advanced Industrial Development. Available at tech level 65, this is still unresearched by a lot of regions that aren't industrial centers. It will boost industrial goods production by 10% and improve efficiency for all factories by 10%. Various society techs dealing with waste management and construction can have significant effects on raw material usage. Also, a number of programming and robotics technologies give benefits to industrial production.
For energy, there are some techs with very big effects. Any technology called "Upgraded [power type]" will boost production by 15 to 30%; they're available after TL101 for $3-6bn. Further along, at TL115 specifically, total energy production can be boosted 10% and efficiency increased by 10% with Multi-Fueled Power Plants.