Good Lamb was a hidden message which appeared through the Ninth Inspector's season. At first, it seemed like an easter egg with no plot relevance, until the inspector noticed the pattern in "Explodingville".
In "Good Lamb", the inspector is captured by the Good Lamb Industry where he is forced to solve puzzles. He discovered that the Industry was controlled by the Blorgons. When he asks the Blorgons why they choose this particular name, they answered they didn't know.
It is in "The Intersection of the Parallels" that the explanation behind "Good Lamb" is given. Lily Taylor tried to break the BOOTH in a desperate attempt to stop the Blorgons, and opened the brain of the BOOTH. After that, she had the capacity to physically alter every matter in fourth dimensions. She became the "Good Lamb" and sent every Blorgon in the Blank while preventing the deaths of the humans. This caused he immortality of the Captain James. Her omnipotence was impossible to contain in her human body and she was going to become an Immortal. The Inspector refused to let her go and he stole her power, which caused him to change again. It was however noted, that the "Good Lamb" DNA was still in her body.
But in the next season, there was still mention of the "Good Lamb" and that "she's coming back". In "Apocalypse", as the Blorgons were to use a dimensional rift to destroy the Universe, Lily felt it was her duty to try everything and she willingly released her "Good Lamb" powers, knowing that, this time, she couldn't be saved. The world was saved, as Lily disappeared to go outside of reality with the Immortals, a place she could never leave.
Because of that, she was never seen again on the show, but it is hinted in "Turn Right" that she provoked the meeting between the Inspector and Mona Virtue, and wrote "Good Lamb" everywhere, because she thought it was funny.