Here, Frederick is using sick to mean "crazy" or "mad," and it shows us two things. He thinks his grandfather was mentally ill, and instead of being sympathetic toward it, he thinks his grandfather deserves to be discredited.
FREDERICK: You are talking about the nonsensical ravings of a lunatic mind.
Speaking of discrediting his grandfather's accomplishments, here we see just that. Even though his grandfather was a brilliant scientist in some respects, Frederick believes all his work should be null and void. Personally, Shmoop thinks that Mel Brooks, in writing this line, was gleefully referring to himself and his screenplay.
VICTOR (as read by FREDERICK): Until in the midst of this darkness, a sudden light broke in upon me. A light so brilliant and wondrous and yet so simple. Change the poles from plus to minus and from minus to plus. I alone succeeded in discovering the secret of bestowing life. Nay, even more I myself became capable of bestowing animation upon lifeless matter!
Here's Victor Frankenstein writing in his journal about the secret to success—reverse the polarity. Besides being a horror movie trope, this description shows that sometimes delusions appear to the insane person as a flash of insight. Grandpa Victor's got a serious case of delusions of grandeur, wouldn't you say?
FREDERICK: It… could… work!
To emphasize how crazy Frederick is becoming here, his own facial expressions are becoming more exaggerated and the painting of his grandfather, who looks exactly like him, makes a crazy smile too.
FREDERICK: If science teaches us anything, it teaches us to accept our failures as well as our successes, with quiet dignity and grace.
Ah, maybe he's not crazy after all. He takes his failure very calmly… for about 2.3 seconds, then he proceeds to completely flip out, reminding us that, yes, he is totally losing his mind.
IGOR: "Abby" someone. […] "Abby normal."
Not only is this one of the movie's most enduring quotes, but it locates the source of madness right in the brain. Brooks clearly anticipated the fields of psychobiology and neuroscience. We knew he was a genius.
FREDERICK: We've all of us got to behave normally.
No one who is sane has to pretend to behave normally. Or maybe we're all just pretending to behave normally, if you stop and think about it…
FRAU BLUCHER: They wanted to hurt you, but I'm going to help you! […] I'm going to set him free! […] No he won't. Not this one. He is as gentle as a lamb. […] It's not rotten. It's a good brain!
Frau Blucher is so in love with Victor Frankenstein, even though he's dead, that she's determined to carry on his legacy, and this mad love blinds her to reality. Everyone knows that love can make a person crazy.