Someone may give a better explanation, but ketones are substances produced when the body breaks down fat to use as energy. This happens when there isn't a good enough supply of glucose, as when people go on very low carb or carb-free diets like the Atkins. It also happens when there isn't enough circulating insulin to allow the glucose to be used as energy. Thus, Type 1 diabetes can cause an increase in ketones which in high amounts are poisonous and can lead to the condition known as DKA (diabetic ketoacidosis).
I don't think Type 2 are as prone to DKA as they tend to be producing insulin, but Type 1's need to check for ketones if their sugars are high as this can indicate imminent DKA.
Hope this helps!