Based on Chapter 717 I have a guess at how the toy population in Dressrosa was created. This is based on the info we have recieved from the Dressrosa arc so far and is just my ideas and should be judged as such. Without trying to dig to deep into the possibilities I would like to say that toys were created using Trafalgar Law's Ope Ope no Mi. In a similar fashion as exhanging Smoker's and Tashigi's minds and bodies Law did the same with humans and toys. Where are the original bodies? Same as the body parts from Caesar's men who knows. Why was this done? Not trying to dig in Doflamingo's mind to much even though he's a character I've like since he first appeared. As far as the memory loss maybe he has a hypnotist erase that part of his subjects memoeries. That's pretty much as much thought I've put into this I'll add more if i think of anything else. What are your thoughts?
Update: Just saw a flaw in my hypothesis in Ch. 700 Law states he's never been to Dressrosa ;[