Cheese was created by Mac's neighbor Louise. Cheese would get out of the house sometimes, and in
Mac Daddy, his first episode, he crawled into Mac's bed. When Mac woke up and found Cheese, he thought he'd created him in his sleep. We didn't find out the truth of the matter until the end of the episode.
As far as I'm concerned,
Mac Daddy was the best Cheese episode. Alas, it's been pretty much downhill from there.
