>>112254537she wasn't an actual psychopath, she was just autistic and emotionally stunted.
She went crazy because she stopped being able to hold power over everyone with fear while growing paranoid while simultaneously experiencing actual human emotions beyond anger that she's seemingly never felt before. And someone who's not used to feeling those take it extremely hard like a little kid.
>, this is also why the beach episode did not make senseit made perfect sense, she's emotionally retarded, hence the flashbacks of her laughing at grim shit while zuko (a normal kid, was scared).