The Mouse Mill is the title of my favourite episode of Bagpuss. It is also the most commonly remembered one, as I have discovered through conversations with wasted people at nightclubs.
In this episode, the mice are using the mouse mill as a chocolate biscuit factory. They claim the biscuits are made from breadcrumbs and butterbeans, but Professor Yaffle is not convinced. He goes round the back of the mill to see what's going on, and discovers that the breadcrumbs and butterbeans are just for show, being hoisted around in bags in a pointless fashion.
It turns out that the mice only have the one chocolate biscuit, and are wheeling it round and round the mill in an attempt to make it look new each time!