I'm trying to understand what is insanity defense, how did it all start, what are the pros and cons of insanity defense, and should it be totally eradicated.
This is a policy question more than one seeking legal advice. So you will not find a definitive answer here. But in my opinion, there are legitimate reasons not to punish criminal actors if they truly did not appreciate the wrongfulness of their actions. It is extremely difficult to meet the legal standard for insanity in virtually every jurisdiction. Insanity defenses rarely succeed, especially in high profile cases. But on the rare occasions that they do, there is usually a compelling reason why.
The insanity defense has been around for 100s, if not 1,000s, of yrs. There are legitimate reasons why a defendant in a particular case may need to have that defense available. Also, it is not clear as to why you are asking about the insanity defense.
I agree that the question you are asking is a policy question and not one seeking legal advice. There are various types of "insanity" defenses and whether or not one would applicable to a particular case depends solely on the specific facts of that case. A simple "Google" search would probably serve to answer your questions if all you are seeking is general information. If you are seeking information on a specific case you may be involved in then you should consult with an attorney.
To abolish the insanity defense would make the law a brutal blunt instrument that would be applied without consideration to the individual's mental state, mental ability. In short, it would take all fairness away from the law. Imagine a person who lacked the capacity to have intent to commit a criminal act, and then imagine them getting the harshest sentence possible. This would happen in a short time and repeatedly if the ability to show a defendant lacked the capacity to commit the crime was abolished.
This is too complicated a question to answer here. I suggest you run a Google search. In my opinion the insanity defense should not be abolished. While it is easily abused, there are numerous checks and balances such that misapplications of the defense are prevented. Moreover, there are instances where the defense is truly warranted.
The insanity defense has seen major overhauls in most states since the famous John Hinkley case, where Hinkley was found not guilty by reason. Half of the states enacted changes in the insanity defense, all limiting use of the defense. Congress and nine states limited the test of insanity; Congress and seven states shifted the burden of proof to the defendant, eight states supplemented the insanity verdict with a separate verdict of guilty but mentally ill, and one state, Utah, abolished the insanity defense outright. The fact is usually the defendant is better off getting convicted and going to jail then pleading insanity and being committed civilly (at least in California) given that defendant usually will spend more time at the mental hospital than he will in prison. There are exceptions where the defendant is facing life or in other unusual circumstances but even in those limited cases, juries are exceedingly skeptical (as you seem to be) when an insanity plea/defense is entered. In essence, the criminal law requires a certain mental status and intentionality combined with an illicit act before it will impose punishment on the defendant. The insanity defense or some related mental defense has existed since at least ancient Greece. The underlying justification for this defense is that persons should not be held morally (or legally) responsible for engaging in actions over which they had no control over given their neurological or mental condition at the time of the alleged crime (have a look at the M'Naghten rule, Durham rule, and the Model Penal Code rule on insanity for different verbiage and standards regarding what constitutes legal insanity in criminal matters). As human neurobiology becomes more precise and specific genes are correlated more tightly with specific behavioral outcomes, it might become more evident that all behavior, including criminal behavior, is in some sense "uncontrollable" and has little to do with amorphous notions of not being to know the difference between right and wrong or know the nature and quality of ones actions. Obviously this terrain involves deeply philosophical questions including free will and determinism, neuroscience, psychiatric diagnosis, and others that can't be adequately answered in this type of forum. If you're interested, read further books on the subject, there are several dozen good ones out there. I don't think the insanity defense should be abolished, though it's policy makers in state legislatures and juries in criminal trials whose opinions are most important, not criminal lawyers.