Sanity is a measure of a character's mental health and resolve. It's maximum value is formed by the sum of their Wisdom and Hardiness stats. Traumatic events have a chance of reducing a character's sanity, while rest almost invariable restores a character's sanity.
A character is considered to be sane as long as their sanity is a non-negative number. An insane character suffers penalties to all of their actions proportional to their current sanity value, and run the risk of developing Madness Afflictions. Sanity can be reduced only to the negative of its maximum, at which point a character is no longer functionally under the control of its player.
Things that reduce a character's mental health are referred to as Shocks. Each Shock has a number representing its intensity, and another number representing how much it damages a character's sanity. Both of these numbers are GM defined, although the damage value may not exceed the intensity value.
Examples of Shock Intensity Values (all stackable):
|+1||First Encounter with Shock of a particular type|
So, for example, a beat cop dealing with his first corpse, a wino who died peacefully in his sleep, might deal with a Shock of 1 (1 basic Shock, +1 first encounter, -1 peaceful). If the rookie's first experience was the ritual torture/murder of his family however, the Shock would be 5+1d6 (1 base, +1 first murder, +1 first torture victim, +1 emotional connection, +1 Many instances, +1d6 horrific) - a rather nastier affair.
When a Shock is encountered, a character rolls to determine whether or not they endure the Shock without suffering any damage to their sanity. This Sanity Check roll is as follows:
(Wisdom or Hardiness) + Resistance Skill Level +d6 |vs| Shock Intensity + Level of any active Madness Afflictions + Number of Total Madnesses
The rookie in the second example would roll his Hardiness or Wisdom (lets say the PC has a 2 in both) 2 + 0 for his resistance skill (he's still too new)+d6 vs 5+1d6+1d6+0+0 (because he's without any Madnesses). Short answer - Rookie is in serious trouble.
If a character fails the roll, their sanity is reduced by the predetermined value. If their sanity at the end of this process is a negative number, they acquire a Madness Affliction related to the current Shock, or increase the level of an appropriate, preexisting Madness Affliction.
Most Sanity damage tends to range from 1 to 3 points (poor Rookie might be looking at a 4 or more though). A GM may also choose to take the results of the above contest into consideration, either doing Sanity damage based on how badly the character failed the contest by, or using it as a multiplier off the the base anity damage.
To continue with the above example, Rookie fails the check badly. The GM decides that this is one heck of a blow, and removes 6 Sanity (Shock 3 * 2 for a major difference) - a rather serous issue because Rookie only has 5 Sanity. Rookie falls to his knees, is massively ill, and runs from the room, unable to stand so much bloodshed. The GM gives character the Trainee Madness Hematophobia (a fear of spilled blood).
Additional problems are likely on the way as well - Sanity recovers in the same way as Health does, and in all likelihood, he's going to have terrible nightmares tonight, getting no rest, and thus, no recovery - he's still at -1 Sanity tomorrow when he goes to work. If the precinct has a staff psycologist, Rookie would be wise to seek some help. Otherwise, even the weakest Shock would risk him falling into additional Madnesses, and with his weak stats and 1 madness, he's in terrible shape to resist it.