In The Great Gatsby, this description of the "Valley of Ashes" and the waste land occurs at the beginning of Chapter 2. This immediately follows a passage at the end of Chapter 1 where Nick describes the green light, the symbol of Gatsby's (American) dream. The contrast of green (life, dream) with the grayness described in the Valley of Ashes shows the disparity of those who have achieved at least monetary success and those who live in the America of wasted potential and impossible access to opportunity. Like T.S. Elliot's poem "The Waste Land," Myrtle's and George Wilson's section of town is a site of wasted opportunities and unfulfilled dreams. This is why Myrtle, looking for some inclusion in a "better" life, goes with Tom.
It is a waste land because it is a graveyard of industrialism and materialism: literally the waste products of a society bent on production and consumption. And this criticism of materialism is also a criticism of the materialistic Myrtle and Tom; the once idealistic American dream has become a quest for less noble ends such as consumption and social rank, both at the expense of noble dreams of others.