He's the fastest LEGO Racer in all of LEGOLAND who is a LEGO Racing Champion which you, the player, must beat in order to become the new LEGO Racing Champion. He and his partner Veronica Voltage made this great racing tournament because Rocket was bored and had no one to beat him at racing, so they traveled through time to find the best racers for this competition.
In LEGO Racers 2, for some reason Rocket looks upset from the last game in the opening cutscene, which leads me to think he has a big ego. He sees an advertisement for Xalax, a planet populated with racing loving aliens called the Ramas. Rocket races to the warpgate to Xalax and races with the ramas, earning their respect and friendship. Rocket gained a new car and outfit and as a result he hosted a racing challenge across the LEGO universe. That's where you, the player, start off in Sandy Bay and make your way to Xalax to face Rocket Racer.