Generators are objects which generate multiple objects automatically. Normally used to generate objects where their locations and other properties are calculated.
Because they are objects that can only be read by PeggleEdit, saved levels containing them cannot be opened in Peggle. You can save your level without applying the generators but when you want to play them in Peggle, you must select your generators and click the apply button on the Tools tab on the ribbon at the top of the main window.
There are currently two generators.
Peg Generator - Generates a circle of pegs by specifying such properties as x-radius and y-radius.
Brick Generator - Generates a circle of bricks by specifying the radius and the number of bricks etc.