Here's the best write up I could find on the backstory in three minutes.
So as the story goes, there are three very different groups of people whose presence can be found in DinoLand, which accounts for some of the confusion: The scientists, their interns, and the locals.
DinoLand (official name: Diggs County) was little more than a stretch of two-lane highway along Florida’s Route 498 (named for the date of Animal Kingdom’s grand opening, April, 1998). The whole area consisted of farmland, an old fishing lodge, and a run-down gas station owned and operated by two locals named–you guessed it–Chester and Hester.
Well back in 1947 (also the year Disney released “Fun and Fancy Free”), a few amateur fossil-hunters found some dinosaur bones in the area. This produced much scientific interest in Diggs County, and soon archeologists and researchers were flocking to the dig site. The findings were so substantial, that The Dino Institute was formed. The Institute bought out all of the surrounding land (except Chester and Hester’s, they wouldn’t sell), and set up headquarters in the old fishing lodge.
Over time, the Institute gained notoriety and funding, and added on to the lodge, albeit somewhat haphazardly. Chester and Hester, wanting in on the money being made, turned their service station into a souvenir store, erecting signs along the highway to trap the tourists heading to the Institute.
As the Dino Institute grew, it became clear that the dilapidated lodge just wasn’t feasible as a base anymore. They built a brand new building, much more modern and able to equip the machinery needed for their research. This paid off, and soon the Institute was able to announce it’s crowning discovery: Time travel. To help pay for it’s expenses, they started offering time travelling tours (you can even take this tour yourself, in the ride “Dinosaur.” Don’t worry. What could possibly go wrong?)
The old fishing lodge didn’t go to waste, either. It was converted into a cafeteria and lounge for the interns and grad students assisting at the Institute. These young interns are the pranksters responsible for adding “osaurus” at the end of all of the area’s signs (including the lodge itself, called the “Restaurantosaurus,” a counter service dining option).
With the ever-growing influx of tourists, Chester and Hester did not want to be outdone. They set up a carnival and midway area in their remaining land, across the road from the gas station. “Chester and Hester’s Dino-Rama” is advertised for miles down the highway, reminiscent of the hokey roadside tourist attractions of the 1950s. It features a couple of corny-yet-highly-entertaining rides, including Primeval Whirl, Chester and Hester’s own mocking version of the Dino Institute’s time tours.
However, I agree, it's the most out of place location in WDW IMHO. I think the backstory was created around the location, not the other way around. AK has always been the red headed step child, I can't imagine this is any different.
I imagine the conversation going something like this.
Suit A: Why are people leaving our newest theme park before noon! It costs a lot of money to feed those animals even when people aren't there you know! They aren't spending money if they aren't in the park!
Suit B: According to exit surveys, people are done with everything a couple hours after they arrive. You're the one who cut out Beastly Kingdom, which would have been a whole new land, instead it's a character meet and greet.
Suit A: That's not it! Stop with the lousy excuses. You better fix this immediately! I want my bonus this year!
Suit B: OK sir, we'll see what we can come up with.
Suit B scurries off to find an answer and read in the paper that the local carnival went belly up and hatches a plan. He visits the local university to get some cheap interns, feeds them McDonalds for a week and comes back with an idea a few days later.
Suit A: Hey that's a great idea! The rides only cost how much? Legal won't go for the bumper car ride, too many injuries and we can't have that. Everything else sounds great, and telling people it's supposed to look cheesy on purpose is GENUIS I tell you, glad I thought of it! Stick with me kid!