So, I 100% believe Daniel's madness was caused by Armand's suicide attempt and Daniel believing that Armand was dead. That was, in my mind, the catalyst that sent him spiraling.

I think he had some obsessive and anxious tendencies as a mortal and he was an alcoholic who basically drank himself to death. And think he was affected by the whole Akasha debacle like the rest of them, but I whole-heartedly believe he was sane and fine as a vampire, more or less, until then. Scattered and distractible? Sure! A little off-kilter and quick to laugh? Absolutely.

But I don't think he was really unwell or having problems until grief and regret hit him like a wrecking ball. We know he and Armand split sometime before, probably in a gigantic, very unpleasant fight, and things were said. So there was probably a lot of guilt, too. All that stuff combined just sort of broke him.

I do think it's why Marius knows he's going to be okay. Because it was an acute onset of madness caused by this horrible event, it's the kind of thing you can recover from (unlike a more chronic condition).

I also think he just needed a distraction and a focus, hence the models and train sets. He needed something to occupy his mind so he could heal and not obsess over the things that sent him spiraling in the first place.

Like so much else in this series, your mileage may vary. We don't get a canon explanation and I'm working backwards here. Daniel was never mad to me until B&G was published, so then it became, okay, well, what happened? He probably thought Armand was dead...That would definitely cause problems for him mentally! It was just the logical leap many of us made, but it's definitely not the only explanation you can extrapolate from canon. It's just the one I use in my personal fanon.