Gay, in addition to expressing happiness, also now means homosexual in current usage.
A century ago the word already had sexual connotations, but entirely different ones. The "gay district" of a town would have meant any permissive nightlife district, probably one with heterosexual prostitution.
The term gay, or lesbian in women, is preferred by many homosexuals because it describes the overall orientation of the person and doesn't focus the definition only in sexual terms. Gays and lesbians establish same-sex friendships, love interests, and life partners; attend same-sex social gatherings and church services; and often purchase goods and services from same-sex owned businesses.