According to the Wikipedia, Yosef made countless remarks which aroused controversy. Statements deemed offensive relating to various groups and individuals which the American Jewish Committee and the Anti-Defamation League condemned as "hate speech".
For instance, among other totally inappropriate comments he claimed that the Holocaust was God's retribution against the reincarnated souls of Jewish sinners.
However, the most condonable one, in my opinion, is the one that he is reported to have made in 2001 about the Arabs and Palestinians: "It is forbidden to be merciful to them. You must send missiles to them and annihilate them. They are evil and damnable."
"Despite his controversial public comments, Yosef had long been a rabbinical authority advocating peace negotiations in the Israeli–Palestinian conflict, and had done so since the late 1980s."
As to the reason for his funeral having been attended by record number of people it seems to have been a reflection of him having been considered an outspoken leader of Sephardi Jewry, apparently a second class of Jew.
Curiously, Israeli laws outlaws hate speech, but some people seem to have gained immunity due to their political or religious prominence.
