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A demand is a noble's request that your dwarves build a specific item of furniture in one of their rooms. Most nobles can make demands, and the number they make varies based on how important they are - see here for more details.
When a noble makes a demand, you will have about half a year to fulfill it. Demands are always for furniture, and always specify the item, like a window, the material, like green glass, and the room it is wanted in, like the dining room. The example demand will thus read "green glass window in dining room". All three parts must be fulfilled, the correct item from the wrong material or the correct item in the wrong room won't count; furniture that constitutes the "border" of a room doesn't count, either, which can lead to complications when windows or doors are demanded.
Demands are announced at the bottom of the screen, but if you miss the message, you can see if a noble is demanding anything on the noble's screen. If the uppercase bracketed word '[DEMAND]' next to a noble's name is gray, he is making no demands. If white, his current demands have been fulfilled or surpassed. If brown (or yellow when highlighted) the noble has stated their demand and has given you time to complete it. If red, the demanded is expected to have been completed already.
Fulfilling the demand gives the noble a happy thought. If a demand goes without being fulfilled, the noble will be "angered at the state of demands" and receive an unhappy thought, but no dwarves will be punished. After about 3 years, an announcement will be made that the noble has simply "forgotten" the demand.
Demands should not be confused with mandates.