1. The default beliefs installed when you were a child.
2. An unexamined position you absorbed from your environment growing up.
I grew up in a conservative home so my factory settings lead me to vote Republican.
I grew up in a liberal home so my factory settings lead me to vote Democrat.
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Aka. Cis and Hetero. Aka. the "normality" for most parents to raise their children into. Used as a sarcasm term when dealing with queerphobic or/and transphobic people. Not a bad thing per se.
John: WTF, do you mean I'm a cis-hetero man?
David: I mean you are in factory settings.
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A man/woman or boy/girl with a mild deodorant fetish.
Girl: Hey! Did you know that Factory/Settings is playing soccer today?