The Gag Factory was once a gift store in Disneyland. It can be reasonably assumed that it ended up in Wasteland after the attraction's closure.
Gremlin Prescott was put in charge of the newly-reopened Gag Factory, much to his displeasure. He felt that the job is beneath his level of intelligence, and as a result has left the factory to fall apart. Later, another Gremlin takes over the job, astounded by that fact that it's still standing after Prescott's poor caretaking skills. If you hand this Gremlin some Scrap Metal, he will start to fix up OsTown, starting with the Gag Factory itself.