towards the beginning of the episode, Eleanor is talking with Michael in his office:
Micheal:
"So, to prepare to meet all of you, I studied the human concept of 'friends'. I even watched all ten seasons of the show 'Friends'. Boy, those friends sure were... friends, weren't they? Although, and I realize this is the kind of observation that would only occur to the mind of an eternal being: "How did they afford that apartment?" A waitress and a chef with those Manhattan real estate prices."
Eleanor:
"Yeah, we were all confused about that too"
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Answer:
The apartment that Monica and Phoebe lived in (at the beginning of the series Friends) actually belonged to Ross and Monica's grandmother and Monica and Phoebe moved in and took over the rent after the grandmother retired and moved to Florida. The apartment was rent controlled and the grandmother had lived there a long time, so the rent was cheap and Monica and Phoebe took over the payments.
This was explained in the show in episode 3.6 "The One With The Flashback"
The group is at the coffeshop and Janis asks the group if anybody in the group had ever slept with each other and everybody responds no. Then Janis asks if anybody in the group had ever "almost" slept with each other which makes everybody nervous and the show goes into flashback of how the Friends met each other.
Ross and Monica are brother and sister. Ross is married but things are not going well with his wife so he spends a lot of his time at Monica's apartment. Phoebe works as a waitress at the bar that the Friends hang out at (which gets turned into the coffeeshop) and is Monica's roommate. Chandler was Ross's roommate in college and he ends up renting the apartment across the hall from Monica, but rent is expensive so he gets a roommate, Joey.
While Joey is moving into Chandler's apartment, he and Monica flirt with each other in the hallway. Monica invites him into her apartment for lemonade and he accepts thinking that she is offering him sex. They go into the apartment and Monica makes lemonade while Joey gets naked. While Monica is making the lemonade she explains the apartment situation.
This is crappy video, but it was the only video of this scene (link)
"This place is really my grandmother's. I got it when she moved to Florida, otherwise I would never afford a place like this. So, if anybody ever asks, I am a 87 year old woman who is afraid of her VCR."