I'm not exactly sure of the reasoning behind the subtitle "The Psycho"...a tad unnecessary if you ask me. Then again, so is the whole movie.
This "sequel" takes place in the big busy city where two roommates/business partners eventually clash, forcing one to move out and (if you didn't see this coming like a freight train) into the apartment of a lonely quiet girl who turns out to be an obsessive nut case (with an appreciation for S&M...hmm). This movie is pretty much the same as the original, save for some different plot twists and turns here and there that lead up to what might be the most boring climax in movie history, taking place in an apartment building hallway. What fun.
I agree with what one person said about the "psycho's" wig in the first part of the movie being terrible, but what was worse was the wretched black bob wig worn by the main character's ex-roommate in an attempt to make her look sexy and exotic...needless to say, if Drew Barrymoore's character in SCREAM had an evil twin, she would look like this...