Just inside the factory there is a Slimy Little Pile that wants to know if you brought some Fly Honey. If you say Yes he you won't have to fight him. If you say No, then you will have to fight him. He's not very difficult though.
There are lots of Foppies in the factory. They are really great to get some experience points from easily. If you use PSI Fire on them you can usually kill them off very quickly.
There is a Magic Butterfly coming up soon so you can spare some PP.
There are several useful items found in this area.
You want Jeff to drink the IQ capsule so that he can fix stuff and Paula to drink the Vitality capsule so she can better retain her HP.
You will come across some Mr. Saturn that are chained down. They appear to be making Fly Honey. Yum.
About halfway though the area you'll find one room has a Magic Butterfly in it. If you go in and out of the room you can use it to refresh PSI to 100%.