Psychosis is a general term for a state of mind in which thinking becomes irrational and/or disturbed. It refers primarily to delusions, hallucinations, and other severe thought disturbances.

What does that mean? Well, you're having delusions if you think the neighbour is actually a witch casting a spell on your back yard to make weeds grow. You're hallucinating if you hear demons talking to you or see them crawling across your bedroom ceiling. You're having a severe thought disturbance if you're convinced that your pet cat is crawling with a plague-like disease so you take it to the vet to have it euthanized.

I'm guessing you're not doing any of that stuff, so you're not psychotic. Petty, stupid people like to throw around psychological terms as insults, hoping they'll hurt. The key is, those words only hurt you if you let them. So long as you know that she's talking out of her as$, then she can't touch you.