The kingdom is largely comprised of ovens, cabinets, cupboards, and tables, where the subjects live. The episode in The Emerald City of Oz in which Utensia appears is a humorous one, with the utensils speaking primarily in puns. A pepperbox named Mr. Paprica makes "piquant and highly seasoned" remarks, Mr. Popp the corkscrew is a crooked lawyer, Sir Jabber the can opener has a "prying disposition," and the colander is the high priest because he's the holiest inhabitant of the kingdom. Incidentally, I believe this is the only mention of a priest in Oz, at least in the Famous Forty, and there's no indication as to what religion he practices. The Utensian army is the Spoon Brigade, led by Captain Dipp, who patrol the area around the kingdom. They carry guns, and insist that they're powerful enough to kill much larger creatures.
So how did this odd country of live kitchenware come to exist? There's no explanation in the book, but an article I remember reading proposed that it might have initially been a dump for old kitchen equipment. I like this idea, although for the most part there doesn't seem to be anything wrong with the Utensians, so why would they have been thrown out? Maybe it was a factory site instead. Regardless, Utensia isn't too far from Bunbury, where the inhabitants claim to be made in ovens. My explanation is that these ovens were capable of bringing things to life, and one that had a magic leak was thrown out in a nearby clearing, where it animated all of the utensils in the area.
As I'm a sucker for puns, the Utensia episode is one of my favorites in the series. A few months ago, I read it out loud as a part of this podcast. Honestly, my reading isn't that good, mostly because I'm way too fast. Still, I'd appreciate it if you'd give it a listen, if you haven't already.