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Cupcakes occupies an interesting space in the My Little Pony: Friendship Is Magic lexicon, in that despite its reportedly 'written on a whim' status, it can justifiably be called the most infamous fan fiction of the Friendship Is Magic fandom (Or simply, brony community), or even of all time. It has become so ingrained in the considerably vast FIM fandom that one will miss a boatload of references and jokes throughout the fandom if they have not, themselves, taken the plunge and read Cupcakes.
On the surface, it's a paradoxical story, taking the candy-coloured characters from Friendship Is Magic and transplanting them into a plot straight out of Hostel. What's more, the torturer in question is one of the show's more upbeat and saccharine characters.
At a cursory glance, the answer as to why this fanfic has cut so deep into the collective consciousness of the fandom is simple: human nature compels us to slow down as we pass the car crash.
But there's potentially something more behind it. Ever since the first episodes aired, Friendship Is Magic gained popularity amongst teen and adult males not out of some misplaced ironic bent, but by dent of the strength of the writing and the strong characterization. Further, despite its original target audience of little girls, the show has never shied away from the darker side of Equestria: our protagonists reside at the edge of a deep, dark forest full of things your worst nightmares would be hesitant to touch, there exists wanton Gods of chaos, filthy scavenger dogs who enslave hapless ponies who wander too far into their territory, and the writers take particular care in mentally shattering their protagonists' psyches to pieces, with all the zest that Supernatural's writers put into that very subject.
So it can be said that the author's savage butchering of Rainbow Dash by a psychotic Pinkie Pie is not merely an infantile mashing-up of two things that are fundamentally detached, but rather an extremified fulfillment of the brooding darkness of an already Crap Saccharine World. It is not uncommon to find fanfics of one of the 'mane six' dying, albeit it is often played for emotional purposes, to tug at the heartstrings for characters that the fans have such a deep attachment to. In all, Friendship Is Magic has never shied away from the darker side of life, and such concepts are clearly not alien to Equestria. Cupcakes is, in that way, the farthest one can take the scale of darkness as presented by the fandom, to such a bleak, absurdist end that there is absolutely no hope to be had.
And it is, indeed, absurd, in the same way as Samuel Beckett's absurdist plays: there is an inherent meaningless to the text of Cupcakes. Every little motion or plea that Rainbow Dash makes is in vain, while Pinkie's behavior - the same as her canon, happy-go-lucky self, only with the bloodthirst of Freddy Kreuger, remains unexplained (although fanfic writers have taken it into their own hooves to theorize anything from a schitzophrenic disorder to a parasite in the brain). She is simply going about the motions, her only intent is to live out her intent, without a higher thought process. It is, essentially, My Absurd Pony: Murder Is Magic.
There's also the possibility that after so long, the fic's infamy has come to feed itself: "There's so many fanfics based on Cupcakes, I might as well make one of my own", for example. Certainly its own infamy has helped to maintain itself; what other fanfic can claim to have a music video made of it by one of the show's official animators?
But it seems that this fanfic has come to transcend traditional notions of personal like and dislike. Anypony who dares to give it a read may leave disgusted, but at the end of the day, it has become so ingrained in the Friendship Is Magic fandom, such a decisively piercing part of the Brony subculture, that it simply IS, in the same way that the original Star Wars has more or less become beyond praise or criticism, and is now simply a part of history and 20th century culture.
It IS Cupcakes, and it doesn't seem like anything is going to change that any time soon.