What does "that's insane" mean and how to use it in different situation?
I hear a lot in the movies.

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The literal meaning is crazy, in the sense of a person who is unable to properly understand reality.  But in movies and real life “insane” is used in related but idiomatic ways, including:

1.  To criticize an idea or plan as extremely unreasonable.  “That’s insane.  Your plan will never work.”
2.  To say that something was wildly exciting.  “I just rode the new roller coaster.  The big drop at the end was totally insane.” 
3.  To say that some situation was extreme.  “It was insanely crowded at the concert.”

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Thank you

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It's an expression of surprise, disbelief, and/or incredulity.

Person A: I'm buying my own private island.
Person B: That's insane!

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"That's insane"/ "that's crazy" is like saying that something is unbelievable. It's said when someone is surprised.

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Mad

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