It's stupid. Fun, but stupid.
I think the Nostalgia Chick and Brentalfloss put it best in the crossover review of Moulin Rouge with The Nostalgia Critic: "guilty pleasures, everybody has a few. Guilty pleasures, you and me and me and you!"
MAJOR guilty pleasure material. Yes, the original material is fairly benign (I say 'fairly' because of Discord, Lesson Zero Twilight and Pinkamena) and aside from those three, there really isn't any indication that a character would do something like this (although Pinkamina strikes me more as the type to be rocking in a corner humming to herself with the lights off than actually being a serial killer) and as such it's easy to make that disconnect between the characters in Cupcakes and the characters in the show. Sure Pinkie Pie sounds like Pinkie Pie for the most part but she's essentially an OC with Pinkie Pie's voice, giddy temperament, and body. Rainbow Dash doesn't really do anything except play the victim and as such, she doesn't really have a character. Neither of them do, really. The two of them are at their most interesting when they're talking rather than when Pinkie is cutting up Rainbow Dash. When the latter is going on, it's just descriptors and screaming and isn't interesting.
Of course, one must take into account intent (if only briefly). Sgt. Sprinkles clearly wasn't going for much and expecting less in terms of reaction. He didn't think he was making a good story and that reflects in the material. It's as famous for its spelling and grammar errors as much as its classic lines such as "Why do they call it a hacksaw?"
Overall, read it if you like this kind of thing, don't if you don't. Don't take it too seriously at any rate and don't think of it as something to get worked up over. It really isn't. It's just kind of fun if you like this sort of story.