How is diabetes caused by obesity?

Insulin all used up: The pancreas gland makes insulin, which is required because Insulin makes blood sugar go into cells (blood sugar is the fuel for cells). A person gets obese by overeating, which puts lots of sugar into his blood each day. In the early years of obesity, he overworks his pancreas by demanding lots of Insulin from the gland. His pancreas "burns out" after a few years, and can't make Insulin anymore.

Fat is not just fat: Excess fat is not just a storage tissue, it is metabolically active, it produces inflammatory chemicals, this affects how Insulin is used in the body, Insulin becomes less effective at doing its job. The pancreas can eventually burn out, but usally the disease process has been going on years before this. People with a family history of diabetes are highest risk.

Insulin resistance: Type 2 diabetes is the Insulin resistance type of diabetes meaning blood sugar levels go up since the body cells have developed resistance to Insulin levels which cause the sugar to get into the cells. So blood sugar levels remain high. High abdominal fat and obesity are directly linked to development of diabetes type because abdominal fat is a major contributor to Insulin resistance.