As per his brother Lloyd, he is called "Mad" by the people just because he is misunderstood for his 'genius' and innovative experiments ( specially the unsuccessful one with the fungus). Basically he become mad from his own passionate work;-) You can also read about it in Lloyd's Diary1 where he explains how the "Replica Dungeon" has been created (it was Helped by Boyd aka Mad Mage, possibly you have noticed that the Replica dungeon has not the exact same lay out (architecture) as the original dungeon, as also could rise a question- why it is a replica with a replica monsters).
"It seems to become a habit for me to start each entry with my brother, Boyd. They call him the "mad mage" now. They say that's what he has become - mad. The problem with mad people is, they are simply misunderstood by everyone else. Of course he's completely sane. He showed me how to protect myself, how to use metal and magic to build a line of defense against everything and everyone from the outside world. He used servants made of iron, gold and even diamond - and I was allowed to "refine" them. But I'm afraid... it's not enough. I need..."
Also in Sane Mage transcript he says "what is a mage, if he is not mad?..."
What interesting is also- is he connected to the Mad Mage Quest3- see question https://www.tibiaqa.com/10867/are-there-two-mad-mages-in-tibia-or-are-they-the-same-person?show=10867#q10867 and to Mad Mage Valley4