Insanity is a legal term that has to do with the ability to distinguish Right from Wrong. Psychosis is a medical term that talks about an organism's behavior in terms of norms and ultimately in terms of survival.
Popular literature attempts to reduce these complex concepts to sound bites like "insanity is doing the same things over and over and expecting a different result," or my favorite " neurotics build castles in the sand, psychotics live in them." Psychotics are thought to have lost contact with reality (
if you
were to ask "what is reality" you would be on the right track).
Most mental disease is just that. A medical condition. Some imbalance of chemicals that makes the machine malfunction. Take a pill to resolve the condition. If medical science has not yet invented the pill you need, learn to live with it. If you still can't relate, society will hunt you down and lock you up or worse. But is there another type of malfunction?
Can the way information is accumulated and organized lead a mind to insanity? Abuse, trauma, and stress can all affect the way information is stored and interpreted. Really smart people can get diverted down some pretty twisted paths.
In a Microsoft Windows or UNIX driven personal computer we see this all the time. The Intel chips are humming along smoothly but some nasty chunk of information invades the memory and may even overwrite something important. The next thing you know the system is "frozen." Recovery is often as easy as Cntl-Alt-Del and then wait for the system to reboot. How do you reboot a mind?
Collective Insanity is the idea that a group, a culture, even an entire nation can behave in ways that are detrimental to its own survival. When institutions become corrupt and there is no perceived way out, great civilizations have experienced problems. Revolution is one approach, others have been conquered from outside. Google the term for some other ideas on this phenomenon. It is considered a "bad thing." It takes a lot to reboot a civilization.
Many of the great religions deal with this idea. Civilization has veered off course and the deity intervenes. Sometimes it's subtle with just a messenger or two. Other times demand a plague or two. Perhaps a relative is sent to intervene. Most religions include a version of Armageddon as the final solution.