Insulation is key. From what houses I've seen in the US vs Europe, the former are mostly wood-based (or similar material) and thin-walled, whereas Europe's houses are often stone- or concrete-based, thicker walls and/or (at least for newer/refurbished houses) very good insulation.

Combine that with some (more or less) clever thermal management and you need way less for both cooling and warming the house. There's also multiple government programs/incentives to improve housing energy consumption efficiency.

Do people need air-conditioning or is it just a luxury?

I guess now the globe is heating up there is more need for one, but I've always thought of it as borrowing from the future a little, a viscous cycle. More AC, More emissions, needs more AC.

I'm in Indonesia right now and sure the houses are built for the tropics but with locals, AC is rare and people manage to get plenty of good sleep and have loads of energy.

It's rarely productive to talk about "need". Do you really need indoor plumbing? Do you need a private bedroom? A broad variety of foods? After all, plenty of people in the less developed parts (and in the near past in the more developed parts) of the world get by without those just fine.

The history of civilization is largely the history of the taming of nature to better suit the needs (and wants!) of humans.

People get used to heat and humidity. If all you know is a more temperate climate or ubiquitous AC then it's hard to image sleeping in tropical heat.