We should probably start with the name of Lord Farquaad, to whom the giant green protagonist was to deliver the princess in exchange for a peaceful life in his swamp.
Just try pronouncing Lord Farquaad really quickly, and you’ll realize it’s by no chance he was named so.
The second innuendo was about Lord Farquaad’s castle.
Shrek and Donkey came to its premises, and, seeing the huge castle tower, the ogre asked his friend, "Do you think maybe he’s compensating for something?" By the way, Donkey didn’t get the message.