Daxter's mind is split into two major places:
Sandover Village and
Haven City. Separated by the security wall leading from Haven's slums to Dead Town, you can choose to go to either place.
Sandover is Daxter's past and the side of himself he pretends isn't there, the insecure guy who knows he's not well-liked. Here, a little red-haired kid can be found in the nearly empty village, looking for his friend. Keeping him company both in the village and on Sentinnal Beach is rewarded with glimpses of Daxter's pre-Ottsel time as well as a few things he's insecure about. The speedboat on the pier is the key to learning why he's fuzzy.
Entering Haven, you may just find yourself short and fuzzy, like a certain loudmouthed fuzzball. Whether or not you do, you'll eventually bump into the Ottsel, who will gladly give you a tour of this "glorious" city, maybe let you take in a race...and possibly drag you on a job or two. But exploration of the city is key to seeing any of his memories from arrival to present.
An air transport on the port leads to
Spargus where more memories can be dug up in the hot Wastelands.