In the vicinity of the questgiver, multiple Lingering Madnesses will appear, and their patrol locations will appear as circles on your map. To lay an insanity trap, use the item from the quest UI, which will bring up an AoE reticule. Target the reticule under a Lingering Madness and click. 'NOTE:' Do NOT stand in the area of effect, especially at lower levels, as the trap will do damage to all mobs and/or players in the vicinity.