Basically, the main difference between neurotic and psychotic is how they affect mental health. For instance, almost anyone can display neurotic behavior and is linked to a developed personality On the other hand, someone showcasing psychotic behavior is doing so because of other influences (drug use, medication, etc). In some cases, a traumatic situation can lead to psychotic episodes. The best judge in distinguishing between neurotic and psychotic behavior is a psychiatrist or psychologist. Through their evaluation, they can suggest treatments and medications to make the person suffering feel better.
To put this simply, day to day functions are not affected when someone is suffering from a neurotic condition symptoms associated with depression, anxiety and stress are will be present. On the other hand, psychotic behavior can be triggered by external factors like drug use or medication.