This means that someone is a little crazy. It doesn’t mean they are dangerous, or really mentally ill, but that their opinions or ideas are very unreasonable:
A: Nana says that there's a man living in her back yard.
B: What? There’s nobody living in her back yard. She’s off her rocker.
A “rocker” is a rocking chair, typically used by elderly people. Therefore, we use this phrase for people who are at least middle aged, and usually older. If your grandfather says that teenage girls should always be home by 8 PM, you might privately tell your friend that he is "completely off his rocker".
Saying someone is “off (his or her) rocker” is insulting and dismissive. It implies that someone is old, and also mentally unsound. Be careful when using this to talk about someone.