What is the difference between Type 1 and Type 2 Diabetes?
I am no expert, but this is my understanding.
T1 is basically the destruction of beta cells due to an auto-immune reaction -- thus too little insulin is produced.
For T2, it is not quite as clear and many different theories abound. Personally, I go with the following theory, which is says that the root cause is insulin resistance of the muscle cells, insulin resistance of the pancreas and/or insulin resistance of the liver.
Insulin resistance of the muscles lead to insufficient glucose uptake. Insulin resistance of the pancreas leads to glucagon being released by the alpha cells of the pancreas in spite of high insulin levels. Normally high insulin levels tell the pancreas to stop producing glucagon, but this doesn't seem to happen in T2s. Glucagon then tells the liver to convert glycogen (stored sugar) into glucose. Insulin resistance of the liver leads to a release glucose into the blood stream even though blood sugar levels are already high.
All of this seems to be happening at the same time for many T2s (though it is possible that for some of us, only some of this seems to go wrong as there also appears to be some variability among T2s). Many researchers argue that this is due too much internal organ fat (especially the pancreas and the liver, but maybe also the muscles) due to regular fat cells, especially subcutaneous, running out of storage capacity. (This doesn't imply, however, that all T2s are obese or even overweight as some of us come equipped with very few fat cells to begin with and quickly run out of storage capacity). Consequently, many T2s are often producing too much insulin (especially at the beginning of the disease) rather than too much.
There are also other forms of diabetes mellitus, such as MODY (due to genes inherited by your parents, there are number of different form of MODY), LADA (a form of T1 as I understand it, onset is slower though than in traditional T1), T3c (due to damage of the pancreas) and T3e (medication-induced).
Sorry if the explanation is not always good. I'm sure there are others that know more and can explain better.