Got the game a couple days ago, and was/am having a blast with it.
So far I've gotten near the end of the Economy story, and did a little Military.

But so far I've only been playing on Hard difficulty, and was wondering what exactly the difficulty changes?
I tried a google search and couldn't find anything. I didn't see anything in the manual.

The only time I tried turning the difficulty down to Normal, was on a mission where I needed to mine more titanium than an opposing colony.

I was originally playing that mission on Hard, and they kept beating me to the punch over and over before I had anywhere near as much titanium as them. I tried switching to Normal, but after one try noticed no difference in the speed the 'enemy' was mining their titanium and so was defeated equally as quickly.

After that one failed try on Normal, I switched back to Hard and after revising my strategy I completed the mission.

So does anyone know what the difficulty level changes?
Is it just frequency and number of enemy attacks? Disaster frequency? Colonist needs degradation? Income?
So far I haven't found a reason to downgrade to Normal; at least after that one time where I found no point on playing Normal.

Thank you, that about sums up what I wanted to know.

I always prefer more challenge when I play, and so prefer more difficulty keeping my colonists pleased, etc.
It's nice to know difficulty effects these things as well and not just enemies.

Space Colony is very challenging indeed.