How does diabetes affect the blood vessels in kidneys?

Simple: Diabetes is a blood vessel disease. It leads to the aging of all blood vessels of the body. In the kidneys it primarily involves the small blood vessels, capillaries, leading into the filtering units and causing drop out of these units. Usually every kidney has about a million units. As these start to drop out over the years the kidney function deteriorates. Bigger vessels are not exempt either.

Attacks blood vessel: Diabetes attacks blood vessels in the kidneys, brain, heart, and throughout the body. In the kidneys, diabetes reduces the ability of the kidneys to regulate what goes through them, so that people with diabetes frequently lose sugar and protein in their urine, and eventually may lose enough function so that they need dialysis, or kidney replacement.