What is the purpose of the concept "sanity"?

People are divided into groups. There are sane people and there are insane people. There are all kinds of mental illnesses. I often wonder how we can call some people mental ill and some people are not mental ill. How can we know what the normal mental state is?
Maybe we are all insane. Maybe the sane people are really the insane people, and the so-called insane people are really the sane people.

People are diagnosed with all kinds of illnesses and many of them are giving medications. But why is it not okay to be in a certain mental state? Of course I can understand that it is not nice to be in a depressed state. There’s a lot of states that it’s not nice to be in, of course.
How can we know that the things that schizophrenic people see are not real? Maybe they are just as real as the things we all se, but these things are only visual to some people?

Who decided what’s normal and what is not?

I don’t know if I make sense, but if you think you have an idea about what I’m talking about, feel free to answer.

Just to make clear, this does not have anything to do with my opinion about these things, only my curiosity.