Pangloss's notion that this is "the best of all possible worlds" has no basis in objective truth.
Then again, neither does any other statement of value.
We are interpretive creatures. There is nothing about a sunset or a rose blossom that is inherently beautiful except that the mind decides that it is beautiful. The same goes for ugliness, and likewise, with good and evil, joy and suffering. Usually, we prefer pleasure to pain, but to say that one is fundamentally better than the other depends on there being a subject to experience pain.
A lot of people absolutely hate this idea. They want to know that a baby's smile can be nothing but good, or that the massacre of innocents could be nothing but evil, with or without their influence. Personally, I think it's wonderful that each of us has to decide what the world is. That we play a role in everything that is beautiful and good, and likewise, that we are responsible for everything that is ugly and horrible. You don't have to interpret it that way, but I do.
So when Pangloss says that this is the best of all possible worlds, is he simply being a fool? Perhaps. He arrives at that conclusion through a series of logical distortions, so as to water down the suffering of those around him. But if he were to confront the pain and misery in the world directly and still retain that optimism? Then I'd say that he's better off than most of us.
Nietzsche, believe it or not, was going after something similar. He predicted the coming of the Ubermensch, a human capable of elevating his consciousness so high that he would be able to say 'yes' to anything the world threw at him. To regard joy and suffering and pain and happiness and injustice and despair with an exuberance than passed far beyond resignation or even acceptance. To embrace existence in any form.
I don't believe that Pangloss was capable of this, but at least his heart was in the right place.
I think that Pangloss' theory is what we'd like to believe but not very correct. This world doesn't lead everything for the best.