First, pick a common scenario, say, taking a bus. Now, exaggerate everything. The bus could be as big as a castle and the driver could be a giant. The passengers are all doing crazy things like having a dance - off in the aisle. When the bus stops, it doesn't just brake gently but screeches to a halt so loudly that it wakes up all the sleeping dragons in the nearby mountains. You have to use your imagination to the fullest and not be afraid to make things really over - the - top.
To create an exaggerated funny story, think about ordinary events like having a haircut. Then, blow it out of proportion. The barber could be using scissors as big as swords. And when he cuts your hair, instead of just a few inches coming off, half of your head gets shaved off in one go. You start crying like a baby, but your tears are so big that they flood the whole barber shop. And the barber tries to fix it by gluing all the hair back on with super glue, but it ends up looking like a bird's nest on your head.