One of the series' main characters, Howard Moon, snags with a hook while out fishing on Old Gregg's lake. Old Gregg is angry and intimidating, but also being seductive as they sit in the rowboat.
"Fuzzy little man peach" is an rather aggressive and possessive pet name, indicative of an offer you dare not refuse.
It's unclear if 'fuzzy little man peach' is a reference to anal sex or a term for a young man whose beard is still soft and fuzzy on his cheeks. The confusion is probably intended to increase the tension.
"My fuzzy little man peach" is immediately followed in the sketch's dialogue by one of Old Gregg's most repeated taglines.
Old Gregg: "Easy now, my fuzzy little man peach. You ever drunk Bailey's from a shoe?"
Howard (almost crying]: whaat?