The theory
I'd recommend getting one of Professor Taylor's books to learn more about the diet, but the theory underpinning this experiment is, briefly:
We each have a personal fat threshold (PFT). Once you exceed your PFT, you start to store fat around the organs, especially the liver and pancreas, instead of under the skin. This triggers type 2 diabetes. Thus by losing weight (getting back below your PFT), you can put your diabetes into remission (I prefer "remission" to "reversal").
There are limitations: it seems people have a greater chance of success if they lose the weight within the first few years after diagnosis (source - slide no.26 and no.27, or about 34-35 minutes into this video). The eight week diet may be enough to get some people back under their PFT, while others may need to lose more - although most people do seem to get below their PFT after losing 15kg, percentage body weight seems more important. Best results are seen if you lose 20% or more (source - slide no.34, or about 35-36 minutes into this video). And, while there are suggestions that people who get into remission will also see their pancreas recover, this isn't guaranteed (and it may not recover fully).
The theory does explain how, while obesity seems a major cause of type 2, you get a substantial minority of type 2 diabetics who have never been over a "healthy" BMI.
If you want more detailed information (which I strongly recommend!), check out Newcastle University's research info and get Professor Taylor's books. I have also gone into more detail in the FAQ.