Hi
@Guzzler,
not sure I can explain this really well, but I will try. (Mind you I am just a lay person, so can't guarantee I understood this correctly.)
Physiological insulin resistance occurs due to a low-carb diet. On a low-carb diet the body scales back the use of glucose for some of your body's functions and uses ketones instead (e.g. brain, muscles). Glucose is thus conserved for the most essential functions (such as producing red blood cells). This is why some people also refer to physiological insulin resistance as adaptive glucose sparing. Physiological insulin resistance can be reversed when we start eating a lot of carbs again.
Diabetic insulin resistance, also known as pathological insulin resistance, occurs when insulin is ineffective or not fully effective at getting glucose into your cells. (Sometimes a lock and key analogy is used meaning that insulin is the key to get glucose into the cell, but it no longer fits the lock). So, cells actually are starving because they lack glucose as fuel and cannot use ketones instead because they are not fat adapted. Thus glucose stays in the blood, but also very often your blood insulin levels will be high (at least as long as your pancreas tries to produce more insulin to force the blood sugar into the cells).
Why insulin is ineffective at trying to push blood sugar into cells is, to my knowledge, not really known. There is probably some genetic component, but some also argue that this happens when there is too much fat in the cells and thus these cells refuse to take on any additional fuel.
Can pathological insulin resistance be reversed? Not sure about the answer to this question -- maybe not entirely or even if reversed, diabetics might be more prone to become insulin resistant again (which would speak for a genetic component). Regular exercise, building muscle, and losing weight will probably help to reduce pathological insulin resistance.