“Dotty” is an adjective and it is similar to crazy, nonsensical or outlandish.
A plan can be dotty (disparatado, estrafalario) and a person can be dotty (chiflado). The word is colloquial.
• Mr. Sanchez has proposed high income taxes. You say “he is dotty” or “the proposal is dotty”.
• Do not listen to that dotty person. He is always talking nonsense (…habla tonterías).
Things can “drive you mad” or “drive you dotty”, that is, they irritate or annoy you.