Why does the Millennium Falcon look like a junkyard reject?

Because George Lucas wanted it to. He didn't want anything in Star Wars to stand out; he wanted everything to look "real and used", believing this would lend credibility to the film's fictional places. The Millennium Falcon, the ship of the smuggler Han Solo, got the full treatment. According to production designer Roger Christian, its set was the most difficult to build: he wanted the interior to look like a submarine, and he made it from inexpensive airplane scrap metal.

The Falcon was part of a whole "used future". Everything linked to Tatooine and the rebels looks aged and dirty, and the rebel ships look cobbled together, in contrast to the Empire's sleeker designs. Money shaped the look too. Before Fox had even funded the film, Christian and John Barry spent months planning props and sets with very little money, and Lucas wrote the script with a budget in mind, conceiving the cheap, "used" look of much of the film. With Fox having just shut down its special effects department, he cut back the complex effects shots, and in 1975 he founded Industrial Light & Magic, whose motion-control photography used small models and slowly moving cameras to create the illusion of size.

Getting the film made took a string of rejections. United Artists, Universal, Walt Disney Productions and a company run by the directors Peter Bogdanovich and William Friedkin all declined to fund it. At Twentieth Century-Fox, Alan Ladd Jr. didn't grasp the technical side of the project but believed in Lucas's talent and gave him $150,000 to write and direct it. Few were confident in its box-office prospects: it opened in a small number of US theaters in 1977 and quickly became a surprise blockbuster.