The game takes the story up where PA1 left off. The thing is, while PA1 story is quite absurd, it's coherent too. The PA2 made a mess of it, trying to kill too many birds with one stone.
[SPOILERS!!!]
We now have little gnomes, but not any usual kind of gnomes - moon gnomes! Men in Black, murderous astronauts from NASA, government conspiracy, mind controlling lunar rays, even damn Sasquatch thrown in for good measure.
[SPOILERS END]
Instead of staying with one nicely drawn plot of Hidden People, someone though it would be a good idea to throw in every wacky idea, stir for a while and it will be fine. Guess what! It isn't. Too many elements that don't necessarily fit together.
Puzzles are similar to PA1, but sometimes require some outside of the game world knowledge like Pi number or knowledge of american coins. It's a bit disappointing that most puzzle types are repeats from the previous game. It would be nice to have more new types of challenges.
So this game is a little worse than Puzzle Agent 1, but still fine.