Well, I hate to be mundane, but I imagine it's mostly (mostly, I say) a marketing label. I trust you weren't expecting a musicological definition. The phrase psych folk has its own Wikipedia page and I suspect it's similar to freak folk, which has been floating around for a while (and which also has a Wiki page). It's young people looking for a new niche, which isn't your niche or mine, and which incorporates all their influences in the mostly acoustic vein. As is usually the case, some's good, some ain't.