Australian slang.
Two bob was once known as two cents in currency, and a watch is an instrument to measure time .
In todays terms ,together they form " a 2 cent watch" .
Would you buy a watch for 2 cents ? and how good would you expect it to perform?. probably very erratically.
Hence the ocker term "as mad as a two bob watch"

related - also see Shithouse Rat and cut snake.