I know that when people say someone's 7:30 it means that he's crazy... but what exactly does 7:30 have to do with being crazy?

Back in the days before we had alarm clocks, waking up at 7:30 was a no-no. Anybody who was up and running that early was considered mentally challenged, hence, the slanguistic expression "he's 7:30"
Thank me later.

I asked someone else this question before reading your reply, and the response I got was completely different. I heard that in prison, they give inmates with mental health problems their medication at 7:30.

this is something I have wondered also. That damn up north talk.