CPS definitely needs to be called. Take it from a former pediatric nurse. Have you and your family document these instances, maybe even record her and her husband saying these things. Save that e-mail where she sent you the picture and talked about her daughter being a demon. Any legitimate (time documented) evidence you can gather, gather it, and take it to CPS. That child absolutely needs to be put into another family member's care until at least the parents are seen to mentally and are in treatment and understand their actions endanger the welfare of the child and are on the road to mental recovery by however their professionals deem and the court deems.
It is not healthy for the child to be raised in a home when she is constantly been compared to and called a "child demon" and where her parents think they are anything but human. It could create delusions in the child, make her a target for bullying, and cause her to have illusions of grandeur among other unhealthy things. She is a child, a child, a child. A human baby. What if they think she is immortal as well? That is too dangerous. What if they will or have performed "rituals" on her, too? We don't want that to happen.
I don't know what is mentally wrong with your cousin and her husband, could be anything from delusional thinking to childish behavior to schizophrenia on the most serious end of the scale or combinations of mental illnesses.
Start gathering evidence now, I'm telling you.
Since she also has former commitments for suicidal behavior and other things, your case is a lot stronger than if she just started doing this out of the blue. It means she has a history of erratic and serious mental illness or troubling mental behavior. She at the very least needs to be evaluated by a psychologist before her child is given back to her.
CPS also needs to come in and check to see if their house is healthy for a child to live in, citing that cat pee. Is the house a mess, too? If so, doubly so they need to check it.
For now, all you and your family can do is call CPS to see if you need to gather evidence and also gather that evidence anyway to make your case stronger. Go with "she has a history of mental illness where she was committed to a facility, and now she is saying her new baby is a demon child because she is convinced she is a demon as well. Her husband, the baby's father, thinks he turned her into a demon through a ritual that he did to her. We are very worried for the baby's welfare and safety. Also, their house still reeks of cat pee and they do not take care of the house. The mother will not lift a finger to clean, and the husband does not either. We are worried for both the sanitary condition of the house for the child and also how the mother and father are convinced she is a demon child born to demon parents even though she is just a regular little baby. They are unable to see that she is a regular little baby, and these delusions are not a game for them but they are convinced it is reality. We are willing to gather the evidence we have of such, if needed."
Do it now. You have no way of knowing what kind of mental illnesses you're dealing with, so there is no reason to speculate, just getting that child some help right now. You can however cite the illnesses/diagnoses/symptoms she was diagnosed with at the time of her commitment.
You and your family can offer to babysit as often as possible as well. With the mother who does not like to do anything responsible, there is a chance she would jump on those offers of help. This way, you and your family can monitor the baby and make sure she is at least getting healthy treatment at your houses.
You mentioned that she hit herself in the stomach when she was pregnant when she was angry as well, correct? Definitely definitely cite that in your list of evidence that she is a harm to herself and possibly to the baby as well since she was certainly hurting the baby when she did that, not caring for the welfare of her child due to her emotional issues at the time.
You should have all the adults in your family call CPS, because the more of you there are saying there is a serious problem in their household the stronger your case will be.