The One with the Evil Orthodontist - S1-E20
Other mistake: This is the episode where a guy across from Monica's apartment is spying on them. Joey says he caught him spying into his and Chandler's apartment yesterday. This is impossible considering the layout of the building i.e. the fact that the only part of Joey and Chandler's apartment which faces toward the spying guy has the stairwell and hallway blocking it from view (not to mention the protruding part of Monica's apartment). There is another window in Joey's apartment but it faces completely the wrong direction. The bathroom has no windows. The angles just don't add up. (00:00:40)
Answer: Usually by the seventh night of Hanukkah you don't know what to get the other person, and you will probably resort to getting the other person something insignificant. Chandler is basically saying that the pen is a stupid gift.