At the end of the first film, the narrator revealed that Donny got arrested for kidnapping Ted, but the charges were dropped and Donny was released when the police realized how ridiculous it sounded to kidnap a plush toy.
Donny came from a lower-class background. His mother had presumably left him with his father, who had one-night stands in front of him.
When he saw young Ted on television, Donny immediately admired him and asked his father if he could have one of his own. However, he declined since he already had given him a rake as his Christmas present. He then tells Donny to go rake the leaves outside. Heartbroken, Donny gets up, takes one last glance at Ted on television, then leaves the room.
Years later, after his son Robert was born, Donny promised himself to be a great father and never say no to his son and let him have absolutely anything he wants — including Ted.
Donny returns in the sequel.
Donny is an obsessive, violent, short-tempered, cruel, quick-witted, and crazed stalker and so-called "fan" of Ted. He cannot accept when things do not go his way and he is apparently stuck in a child-like emotional state.
Donny is known to have a severe dislike for profanity, usually responding with either a scream or violence or else he will simply tell the person not to swear.
He has an intense love to drink and dance to Tiffany's "I Think We're Alone Now." This is briefly shown in the first film, where Ted is about to escape when he notices Donny dancing to the song on television. Afterwards, at the end of the film, the footage is used again when the narrator explains Donny's fate.
When Robert was born, Donny vowed to be an excellent father and never say no to him.
His neglectful upbringing most likely contributed to his current mental state. Since Donny has no wife, Ted assumed in the first film that Robert might also be his lover (although he most likely isn't).