Man-man is what can generously be described as a local character, a colorful eccentric who makes life on Miguel Street just that little bit more interesting.
Everyone on Miguel Street is of the opinion that Man-man is not just eccentric, but actually mad. And when one looks at his behavior, it's not hard to see why they think this way. For instance, when a Portuguese café owner throws him out of his establishment, Man-man breaks into the café at night and lets his dog defecate all over the place. Just the kind of behavior one would expect from a madman, one would've thought.
And yet the narrator's unconvinced that Man-man really is insane. For one thing, he doesn't look mad. He doesn't stare at people in the way that you'd expect a madman to stare. And when you speak to him, you can always be sure of a reasonable reply, something you wouldn't normally expect from a genuine madman.
The narrator's clearly operating under the assumption that, in order to be mad, you have to look and sound the part. As Man-man doesn't, then the narrator sees no reason to regard him as being insane. Later on in the story, however, it will become very difficult to maintain this position when Man-man proclaims himself to be the Messiah and is carted off to an institution.