When Lord Siva heard from his wife about Daksa, the psychological effect was that he immediately remembered the strong words spoken against him in the assembly of the guardians of the universe, and, remembering those words, he was sorry at heart, although to please his wife he smiled. In Bhagavad-gita it is said that a liberated person is always in mental equilibrium in both the distress and the happiness of this material world. Therefore the question may now be raised why a liberated personality like Lord Siva was so unhappy because of the words of Daksa. The answer is given by Srila Visvanatha Cakravarti Thakura. Lord Siva is atmarama, or situated in complete self-realization, but because he is the incarnation in charge of the material mode of ignorance, tamo-guna, he is sometimes affected by the pleasure and pain of the material world.
The difference between the pleasure and pain of this material world and that of the spiritual world is that in the spiritual world the effect is qualitatively absolute. Therefore one may feel sorry in the absolute world, but the manifestation of so-called pain is always full of bliss.
For instance, once Lord Krsna, in His childhood, was chastised by His mother, Yasoda, and Lord Krsna cried. But although He shed tears from His eyes, this is not to be considered a reaction of the mode of ignorance, for the incident was full of transcendental pleasure. When Krsna was playing in so many ways, sometimes it appeared that He caused distress to the gopis, but actually such dealings were full of transcendental bliss.
That is the difference between the material and spiritual worlds. The spiritual world, where everything is pure, is pervertedly reflected in this material world. Since everything in the spiritual world is absolute, in the spiritual varieties of apparent pleasure and pain there is no perception other than eternal bliss, whereas in the material world, because everything is contaminated by the modes of material nature, there are feelings of pleasure and pain.
Therefore because Lord Siva, although a fully self-realized person, was in charge of the material mode of ignorance, he felt sorrow.