In Shakespeare’s day, the word “wits” sometimes referred to the five external senses (hearing, sight, touch, feel, smell), and that’s how Mercutio’s using it when he tells Romeo not to judge him by what Romeo heard him literally say. But the term “wits” could also refer to the internal faculties of perception (reasoning, judgement, etc.) and that’s how Romeo’s using it when he says that it was “no wit” (poor judgement) to crash the Capulet’s party. This is how we use the word today in expressions such as, “having your wits about you.”