Factory ships were space capsules capable of creating armies for partially-cybernetic races, containing automated assembly plants. Dalek factory ships grew new Dalek mutants and constructed their casings. They were also employed by the Cyberons, who prepared the mechanical bodies in advance but preferred to use brains taken from live humans as the organic component.
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Two different accounts identified one Dalek space capsule which crashed on the planet Vulcan where it was discovered by human colonists (TV: The Power of the Daleks) as a factory ship. (PROSE: War of the Daleks, Dalek: The Astounding Untold History of the Greatest Enemies of the Universe) Though the active Dalek crew managed to restore power to their ship, the Second Doctor ultimately destroyed it when he overloaded its static power feed. (TV: The Power of the Daleks) In contrast to those two accounts, according to the Time Lords' Dalek Combat Training Manual, the capsule was in fact a scout craft used for reconnaissance missions. (PROSE: Dalek Combat Training Manual)
According to one account, it was one of the Dalek factory ships which had been sent out from Skaro by the thousands in the early days of the Dalek Empire. One ship could theoretically produce hundreds of Daleks within a few hours of planetfall. Another, far more advanced, factory ship than the one found on Vulcan had landed on Vega IV. It had the resources to produce over 3,000 Daleks. (PROSE: Dalek: The Astounding Untold History of the Greatest Enemies of the Universe)
According to another account, the Vulcan factory ship was native to the era of the renewed civil war between the Daleks loyal to the Dalek Prime and those loyal to Davros. During the short, violent conflict, the former faction planted a dimensionally transcendental factory ship aboard a Thal ship returning to their own space. This was discovered by the Eighth Doctor who, aware that this would enable the creation of a new Dalek army in enemy territory, used the TARDIS to expel the factory ship through interstitial space, claiming that he had already dealt with it "in another time, and another place". (PROSE: War of the Daleks)
During the New Cyberon Era, (AUDIO: Curse of the Cyberons) the Cyberons made use of factory ships which crafted mechanical bodies in advance. They would then harvest the brains of living foes and stuff them into the "prepared forms", creating new Cyberons. Dracula became aware of this method of "reproduction" after becoming the Cyberon Controller, and had mixed feelings about now being part of a race with no concept of "sex or sexuality". (AUDIO: The Weapon and the Warrior) In other eras, Cyberons used different systems for the creation of new Cyberons, such as Conversion Engines. (PROSE: Flight of the Cyberons, etc.)