Slightly crazy or silly; also a noun referring to a small toilet seat for young children.
As an adjective, possibly derived from 'pot' with influence from words like 'dotty.' As a noun for a child's toilet, it's informal British English, likely from 'pot' combined with a diminutive suffix. The 'crazy' meaning appeared in early 20th century slang.
The word 'potty' shows how languages change fast—'potty training' is such normal parenting language now that few parents realize they're using Britishisms from a century ago that American English almost rejected before adopting it wholesale.
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