My understanding is that regular psychosis involves someone taking bits and pieces of facts or real world events and chaining them into a logical order or interpolating meanings or explanations which feel real and obvious to the patient but are not sufficiently backed by evidence and thus not in line with our widely accepted understanding of reality.

AI psychosis is then this same phenomenon occurring at a more widespread scale due to the next-word-prediction nature of LLMs facilitating this by lowering the activation energy for this to happen. LLMs are excellent at taking any idea, question, theory and spinning a linear and plausibly coherent line of conversation from it.