Lots of sources confuse mentions of "Molly Del Rey" with "Monterrey"...chances are it's a Mondegreen...the lyrics would likely have been about Molino del Rey, (King's Mill) site of a major battle in the Mexican War.

Even Wikipedia, dam their eyes, knows about the battle:

The Battle of Molino del Rey (8 September 1847) was one of the bloodiest engagements of the Mexican–American War as part of the Battle for Mexico City. It was fought in September 1847 between Mexican forces under General Antonio León against an American force under Major General Winfield Scott at El Molino del Rey on the fringes of Mexico City. The Americans made little progress in this battle, but the Mexican forces were unable to hold them back long enough to prevent the capture of Mexico City one week later.