Factory functions and constructor functions in JavaScript behave differently when it comes to prototypes.
Factory functions return plain objects with no prototype connection, while constructor functions set the prototype of the created object to the constructor's prototype.
To address issues with prototype inheritance in factory functions, methods can be included directly in each object or Object.create can be used for proper prototype inheritance.
Understanding the differences between factory and constructor functions is crucial for efficient memory management and ensuring expected behavior in JavaScript object creation.