Threed is an area that is ruled by ghosts and zombies. Many strange things start happening to the town when this happens, such as walking trash cans, flying puppets, and other things that all want to kill you. The main reason for this hostility is because Master Belch knows that you are trying to defeat Giygas.
This spot only appears in Earthbound. When you first arrive there, the area will be an eerie purple. It will have things like graves and such throughout the entire grave. When Jeff arrives, the graveyard that will immediately draw your attention gets a big hole in it from the Sky Runner. Nobody ever gets around to fixing up the hole. After you beat Master Belch, and free Threed from the Poltergeists, this area will go back to a normal town. Not nearly as colorful and happy as the other three main towns, but still back to a normal town. This is the way the town will be for the rest of the game.
The ruler of Threed when you first get there is Master Belch. He resides near a waterfall in Saturn Valley. The only way to stop him from completely taking it over is to beat the Zombie Tent, obtain the Jar of Fly Honey and use it on Master Belch. This will save both Saturn Valley and Threed, due to him trying to use them all as slaves, or mind-control dolls. They work for him to make more Jars of Fly Honey, and when you stop him, the conveyor belt will stop, and all of the dolls will return back to normal, and all of the slaves will continue working on a ladder that they needed to finish.