The Pfannkuchen was a club in Hamburg, Germany. Unbeknownst to Nyssa or the Fifth Doctor, though, the restaurant was in reality a disguise for its true form — the space-time vessel that brought the Common Men to Earth from Byulna. Technology within amplified the hysteria among the public for the 1960s pop group. Also included in the equipment onboard was the genetic modifier used to disguise them as humans.
The Doctor and Nyssa met Common Men Mark Carville and James O'Meara there in the 1950s. While attempting to prove to them that they weren't human, Lenny Kruger brought an army to that location, with high-technology weapons and space-time vessels. When the Doctor discovered its true form, though, he used it to escape to Liverpool. The Doctor later used the ship's genetic modifier to create a fake corpse of James to support rumours of his death at the hands of a certain Lenny Kruger.
Behind the scenes
This is actually untrue. Literally, the word Pfannkuchen means pancake, and is used as such in the majority of Germany, including Hamburg. It is only in select German locations like Berlin that Pfannkuchen is used to mean anything close to doughnut, and even then it's only a pastry vaguely resembling one in design.