Window AC units typically have standing water in the outdoor half to improve the energy efficiency of the unit. The outdoor fan has a “slinger ring" on it that picks up the standing water and wets the outdoor radiator. This lowers the temperature of the outdoor radiator through “wet bulb" evaporation, and the hotter it gets outdoors the more it helps.
The easiest way to get rid of the moldy funky odor is to keep the unit sanitized. Clean the air filter and use a bathroom sanitizer type of cleaner on the indoor radiator. There are two main types of cleaner sanitizers: oxidizing agents (chlorine bleach, oxy peroxide, toilet bowl cleaner acid) and alkaline agents (ammonia, scrubbing bubbles, windex). Pick one and use it on the indoor side while the unit is shut off. Let the agent penetrate and do it's job for a bit. Spray some rinse water and let that follow the cleaner outdoors. Put the unit back to work and the outdoor side will usually take care of itself.