This absurd idiom finds its Origin in a story of the notorious Till Eulenspiegels. This slaved in said story as a henchman for a farmer. Among other tasks, he was also assigned the task of brewing beer. When the farmer wanted to do some business in the city one day, he instructed Till Eulenspiegel to boil the hops in the meantime. Stupidly, the farm dog had the beautiful but unfortunate name "Hopf". Known for always taking everything literally, Till grabbed the dog by the scruff of the neck and threw the poor quadruped unceremoniously into the panto boil it. When the farmer returned from his stroll and saw the motionless animal in the pan, he was horrified and chased Till Eulenspiegel from his farm. When Short form this tragic incident originated this idiom. That's what people say today whenever something unheard of happens: "That's where the dog goes crazy in the pan!"
Funny anecdote about this: Did you know that the first name Till is only a short form? Corresponding to Till would be the "sounding" names Dietrich or - even better - Ägidius. Is logical, nevertheless? 
Text sources
Mackensen: 3876 first names. Südwest Verlag, Munich 1983, p. 5 u. 167
https://www.swr.de/blog/1000antworten/antwort/5272/da-wird-doch-der-hund-in-der-pfanne-verruckt-%E2%80%93-woher-kommt-das/