Quoted from TheRudyB:But even that one can be quite dark, both from the creepiness of Rudy just to begin with, as well as according to one version of the game’s story that claims what’s really going on is that Rudy is actually imprisoning kids in the basement after he lures into the funhouse. Gives new meaning to many of the call outs and makes it feel like you’re on a mission to rescue them while not arousing Rudy’s suspicions of your motive for being there.
I always interpreted the Funhouse "story" as this. Rudy is an animatronic figure (note the sign in the back of the playfield boasting "See the amazing mechanical man!"), and his controls/power supply is in the basement. The scream he makes when you score a Million Plus implies he's being electrocuted. So the overall story is that a bunch of kids are playing pranks and tampering with Rudy's machines.