The narrator's madness is due to the love he had for the director's daughter. I noticed that his love blinded him, which led him into hallucinations of dogs talking and writing letters. The narrator was just trying to find out a way to discover things about the director's daughter, which led to his hallucinations. Also, I noticed that after reading the "letters" and finding out that the director's daughter was going to marry, the narrator fell into further insanity and started supposing things, that weren't true like him being the king of Spain.