Learn Swedish: Påhittet förstörde uppbyggnaden. - The crazy idea ruined the build-up.

It is a direct nominalization. When turning the particle verb hitta på (to come up with / to invent) into a noun, the particle på shifts to the front of the verb stem hitt. This creates the neuter noun ett påhitt (a crazy idea / a concoction), which we see here in its definite form påhittet.

Does the noun ett påhitt always mean a crazy idea, or can it mean any kind of invention?

It usually carries a playful, dismissive, or slightly negative tone, translating best to a scheme, whim, or crazy idea. If you want to talk about a serious, technological, or scientific invention, you should use the word en uppfinning instead.

The word uppbyggnaden comes from bygga upp, but where does the -nad part come from?

The suffix -nad is often added to verb stems in Swedish to create abstract en-words. While the related noun ett uppbygge refers to a concrete, physical construction project, en uppbyggnad refers to an abstract structure, composition, or a gradual build-up (such as the build-up of tension in a movie or the structural foundation of a story).

Could I use ruinerade instead of förstörde to mean ruined here?