I am so sorry what you had to witness and go through.
First off, isn't that Breaking and Entering to get into a window and filth it up?
Then he is in the shed.
May I suggest something? I would have called the police right there when you saw the mild cut and knife. To get or try to get the knife from an unstable alcoholic could be dangerous with an accidental cut to you. That is not your job or training and that probably made it worse for you emotionally.
As for the insensitive cop. I would have been hysterical and yelling if this had happened to a family member. To criticize you for yelling (when other one said you were not) is just adding to the already unpleasant situation.
One of them should have removed you from the scene and then waited until you calmed down (deep breaths) and then been able to talk to them. They are missing some sensititvity training there. For others insist on this. We had a grill fire and a police man was trying to get me to fill out a form and I was still shaking - and told them they were going to have to wait until I could calm down. Assert yourself as politely as possible when you have witnessed something like that. They should not have kept you there.
Then you have to call his Mom and tell her. And then the family drama.
Then the psy ward wants to release him to you?
I would insist that this man is running around your home with a knife and coming in through windows and you do not think this is a safe thing. Put it back on them. There you got him out of your life only to have this drama happen?
Maybe demolish the shed also since he seems to think that is his place to go. Change locks, look into better security with the window. I don't really think you are in direct danger (as most have said here it is more passive aggressive) from him - but this is dangerous situation that could escalate even accidentally.
Is his probation officer going to get a call from psy ward about this or an anonymous one?
Take care of yourself and make plans how this absurdity cannot happen again.
"How did it get this bad?". That is truly what is so painful about all this, you try to help you are so glad when they get treatment and are the blamed one for it all when it goes wrong. Especially with what you just endured try to take a day off or at least take a quiet evening to relax as one poster mentioned and realize none of this was your fault at all.