Basically, it's damaged receptors. Put simply, all cells in our body have insulin receptors, which are like the locks on the doors that let energy (in the form of glucose) into the cells. Insulin is the 'key' that can open these locks. However, with insulin resistance it is as though the locks are rusty, causing difficulties for the body to use glucose efficiently, and levels of blood glucose climb high. If this happens then the pancreas will try to produce more insulin to overcome the resistance, which is why Type 2 diabetics often produce large amounts of insulin. Unfortunately, unused glucose is laid down in fat cells by another mechanism of insulin, which can then cause weight gain.
Weight loss (if necessary) and exercise helps to overcome the resistance and make the insulin more efficient, allowing the body to use more of the glucose as energy and blood glucose levels do not climb as high. Exercise has the additional benefit of creating more insulin receptors on the cells, again increasing sensitivity. Reducing carb intake, especially fast-acting carbs like sugary, starchy items, can reduce the output of insulin so reducing the weight gain effect 🙂
Not an official explanation, but one I have always found helpful 🙂