The song that plays on the music box (and at several other points in the film) is actually "You May Be The Next", as stated by Lou Lou (Laurraine Toussaint). Both rhymes/songs start off with the same few lines though and is easily confused with "The Hearse Song".
The trivia items below may give away important plot points.
The fictional "mill valley" town may be a reference to Downingtown, Pennsylvania, originally named Milltown. Downingtown was known for its abundant papermills, and over the decades the paper mill industry in the town faultered much like in the film. This would also make sense since pennhurst, the hospital Sarah bellows is admitted to, is only a half-hour drive from the town. Coincidentally, Downingtown is also the location of a classic monster flick, The Blob (1958).
Some of the monsters seen in the film are actually from different stories. The drawing the corpse looking for her toe was based on is actually from a story about a haunted house, while the jangly man seems to be a mix of his own titled "Footsteps" and from "me tie do ti ty walker," as he is initially a head that falls down the chimney and speaks the phrase, before attaching other limbs. The only monsters who are from their own story are the spiders, the pale lady, and Harold.