“Congenital monstrosity” is an old fashioned, and to our ears horribly inhumane way, of describing a newborn who has multiple severe deformities which don’t fit an obvious pattern. So a child with problems associated with a spina bífida may have had multiple such problems, but because they could all be put down to the one underlying cause, it would simply be acknowledged as due to the spina bífida. A child described as having (being?) a “congenital monstrosity” would have other problems that couldn’t be easily ascribed to any one underlying problem.
I don’t think it was intended to mean that the child was a monster as such - but of course it must have sounded that way to the poor parents.
Such problems could have a number of possible causes, eg infections whilst mum was pregnant, rare genetic or chromosomal syndromes, amniotic band syndrome (don’t google this if you’re feeling squeamish), instances of conjoined (“Siamese”) twins where the separation of the two babies had gone badly wrong, etc.
(It was used to describe such problems in animals as well as in humans and if you google the term you will find many similar references from the vet. World).
Regarding the lab comment, the baby’s body may have been kept by the hospital where it was born - not as a ghoulish freak show, but to try to analyse the cause of the deformities, to teach other medical staff etc. Nowadays of course this could not happen without the consent of the parents - I suspect that such niceties were ignored 85 years ago. But some good may thus have come of this poor family’s grief. Medical schools nowadays still have museum collections like this from decades ago but the whole ethos has changed, and certainly in my alma mater, there is a great deal of respect given to these, as befits the remains of people born not that long ago.