Answer:
Mercutio uses puns to make fun of Nurse’s appearance.
Step-by-step explanation:
There's not much to explain. The text literally says:
Mercutio: Good Peter, to hide her face; for her fan’s the fairer face.
If you didn't get that -- then basically, Mercutio said the Nurse's fan looks better than her face. He must have thought it was a pretty punny and clever response.