Wackyland

An especially whimsical, surreal, or nonsensical area in a video game. May be comprised of dream logic, music, toys, living food, etc. Generally, the theme is something "fun" and "cute", except enormous and come to life (and, that's right, out for your blood). The general theme is something approaching the setting of the original Alice in Wonderland, where everything is large, colorful and alive, and little makes sense. A Widget Series like Katamari Damacy may never leave Wackyland. AT ALL.

Common variations include:

Band Land: A level that is made out of musical instruments or otherwise music-themed.
Casino Park: A level with a casino theme.
Level Ate: A level that is made out of food or food-themed.
Pinball Zone: A level that takes place inside a pinball machine, or at least features elements of one like flippers and bumpers. Sometimes combined with Minigame Zone.
Toy Time: A level made of toys, taking place in a toy shop or toy factory, or (if you're small enough) on a shelf or in a closet full of toys.

Comic Books

Star Wars is used to single biome planets. The Marvel comics took this Up to Eleven, with Zeltros, a disco planet!

Fan Works

A non-game example -- in Drunkard's Walk VIII, Albus Dumbledore enters the mindscape of Douglas Sangnoir and finds it is strongly influenced by classic Looney Tunes cartoons; he comes across a sign therein declaring "Welcome to Wackyland! Population Thursday and still Growling!"

Live Action TV

Live TV example: the Living Island of H.R. Pufnstuf.

Video Games

Wackyland became a level in the first Tiny Toon Adventures video game for the NES, however.
Magicant, the former trope namer, from EarthBound is a surreal world made up of Ness's subconscious. There's also a Magicant in MOTHER 1. This one counts as full-on Nightmare Fuel, possibly Unleaded, as this one is, in fact, a world created by the protagonist's dead great-grandmother because she couldn't understand she was dead until the protagonist sings her a lullaby, and thus all of Magicant is destroyed as she finally finishes dying.
- Moonside from Earthbound qualifies as well. It's also a hallucination brought on by the Mani-Mani Statue.
What better exemplifies this trope than the Famicom game Cocoron?
Wonderland in Kingdom Hearts.
The special stages throughout the Sonic the Hedgehog games fit this trope, usually using completely different mechanics from the rest of the game, and set in places like checkboard microplanets and half-pipes in space.
Many of the mental worlds in Psychonauts, but the ones that fit best are probably Waterloo World and Black Velvetopia.
The more peaceful areas in American McGee's Alice have some aspect of this.
All of Chibi-Robo.
Much of the Mushroom Kingdom from the Super Mario Bros. series. Everything has a face and is made up of random blocks and talking mushrooms!
- Super Mario Galaxy named Toy Time.
Planet Sonata in Ristar.
Rayman has the artsy world of 'Picture City', which is mainly constructed from erasers.
- The Teensie Highway sections in Rayman 3: Hoodlum Havoc were pretty bizarre, too.
Robocod was composed entirely of this.
Aladdin and Aladdin each included a level where Aladdin goes inside the Genie's lamp. Both were bright, whimsical, and filled with Bottomless Pits. (Imagine how embarrassed Genie would be if he had actually killed his new master!)
The Lost Vikings sets each world in a different time period through a Time Vortex, but the second to last one is a land of pastry-like terrain, helium air pumps, silly music, and enemies such as a one-armed rubber ball which dribbles itself.
Some of the levels on Earthworm Jim 2 fall straight into this trope, presenting some of the most surreal and bizarre levels ever concieved by a video game designer on an acid trip. These levels include an intestine level, a level entirely composed of paperwork, and a meat level appropriately named "Level Ate".
Cloudcuckooland in Banjo-Tooie.
The food/theme park level of Chameleon Twist 2.
Palette's castle level in Graffiti Kingdom. Elevators are giant pancakes and on the stage there are giant bottles of milk, salt shakers, ice cubes, snowmen, and the main areas are completely made up of shades of pink.
- And then in the boss fight itself, you're essentially in/on a giant cake, with Palette herself in a cutesy chef's uniform.
The sixth level of Sparkster (SNES version) is another example of the "giant musical instruments" subtrope.
NiGHTS Into Dreams is set in Nightopia, pretty much a textbook Wackyland.
The Dream Weaver's world from the original Spyro the Dragon.
The Silly level in Marble Madness.
Zool: Ninja From The Nth Dimension and its sequel were both set in numerous Wackylands. Stage 1 and Stage 3 of the first game are Sweet and Fruit-themed, Stage 2 is music-themed, and Stage 5 is toy-themed.
The Easter Egg level "Out of This Dimension" in the original Star Fox was full of paper airplanes and other bizarrities, and the final boss was a Slot Machine. And then you are stuck flying and shooting at the credits and thus, you must reset the game.
The whole Earth is like this in Tonic Trouble. Let's just say that a snowy mountain covered with palmtrees is the least bizarre environment in the game.
The Isle of Wonder in King's Quest VI.
One of the scenery themes in Rollercoaster Tycoon is called Wonderland, and is mostly candy and game pieces.
In Lyle in Cube Sector, you must help rescue Lyle's cat in the wonked out lands of the Cube Sector.
The bonus stages in Battletoads in Battlemaniacs have bowling pins or dominoes with playing cards and chess pieces in the background.
Time Warp Tickers from Action 52 has a checkerboard pattern, upside-down doors and other craziness plus very different kinds of enemies after you.
The final level of Bug! Too! which is one entire Mushroom Samba.
The Parodius series has wacky levels of many kinds, some of them spoofing other Konami games.

Western Animation

Despite not being a videogame, Wackyland from Porky Pig's Haunted Holiday is the Trope Namer. Much like its appearances in the cartoons "Porky Pig in Wacky Land" and "Dough for the Do-Do", it's surreal to the point of Nightmare Fuel.
- Wackyland was a major part of Tiny Toon Adventures, as well. Gogo Dodo was from there, and it seemed to be comprised largely of surreal, Dali-like imagery and free-floating objects that obeyed no laws of standard physics.
Another non-game example: In the Farscape episode "Revenging Angel", a lot of the story takes place in an imaginary Looney Tunes-style cartoon world.