Confused yet? The place that they're in is just called limbo (and I think it might also be called "The Maker's Punishment", which could just be something that fans came up with, I'm not sure), and it's still not clear who exactly it was that sent them there.

Also, I should probably mention that the AU's all look like pieces of paper because Ink made them look like that so that he could scatter actual pieces of paper among them to confuse those who want to cause trouble (such as Error). He calls his realm which contains all of these pieces of paper/AU's the "Doodle Sphere".