tbrinkma seems to have the general idea worked out.
anonymouslurker seems to actually know what's going on exactly but can't tell us because he's probably under NDA.
I wish I had MFI info cuz it'd be fun, but oh well... at least I can speculate.
But, I'll try to flesh out the most reasonable extension of the info as I can.
Starting out with the picture in this article
http://appleinsider.com/articles/12/09/25/apples_lightning_port_dynamically_assigns_pins_to_allow_for_reversible_use.
The idea of an adaptable connector requires intelligence on both the phone and accessory/cable side for the optimal design. KnightWRX's idea of putting all the smarts on the phone side and leaving the accessory/cable side as dumb as possible (by using an identification resistor) can work, but it'll be more prone to errors because oxidation and such affects resistance on contacts. (it's also, incidentally, how microUSB/OTG/MHL works, as well as the earliest of all 30-pin dock connector devices, and why when you get the bottom of your phone moist, it tells you you have an unknown accessory attached.)
I'm expecting the chain to look like this right now (as tbrinkma suggested):
Phone + Switching chip + Connector <-> Connector + ID chip + cable + USB2
If you look at the lower left hand corner of that double helix guy's notes, you'll see the top/bottom pins with lines drawn between them. Notice this: pin 1, 4, 5, and 8 are reversible. But 2/3 and 6/7 are not. As in, if you turn the connector around, it still works fine. I'm guessing these correspond to ground, 5V out, ID input, ID output.
When you plug the accessory into the phone, the ID chip is powered from the phone, and then can tell the phone, "I am a USB2 cable." This means that then the phone knows that pins 2/3 and 6/7 can be configured to be wired to a usb2 controller.
I haven't seen a teardown yet or a test, but I'd also expect the lightning/30pin to do something slightly different.
When you plug the 30pin adapter into the phone, the ID chip is powered from the phone, and then can tell the phone, "I want digital audio and USB2." This means that then the phone knows that pins 2/3 and 6/7 can be configured to be wired to a usb2 controller and to a digital audio out. But, remember it has to be reversible, right? Well, over the ID in/out lines, you can establish a test to see what the orientation is (like, tying 2/3 high and 6/7 low), and then the phone knows you want, say 2/3 to be USB2, and 6/7 to be digital audio. Then the rest of the lightning connector then takes the digital audio and feeds it to a digital-analog converter for line out.
So... what else might it do?
Fast Charger?
Phone + Switching chip + Connector <-> Connector + ID chip + some power connector.
ID chip asks for the data pairs to be changed into power inputs.
Now instead of 2 pins used for power, you can have 6. Triple the power carrying capacity! Plus, the phone knows that it might be able to ask what's the current limit of the power source from the ID chip.
HDMI?
Phone + Switching chip + MHL encoder + Connector <-> Connector + ID chip + MHL decoder + cable + HDMI connector + USB2.
ID chip asks for HDMI over MHL transceivers , detects the orientation of the adapter, and then brings out the HDMI data over the MHL protocol, over one of the pairs just like microUSB.... and leaves the other pair available to get you USB2 at the same time as MHL. And the MHL chip can be powered off the phone too. (you can't do that with microUSB)
DisplayPort?
Phone + Switching chip + Connector <-> Connector + ID chip + cable + DisplayPort connector.
Same idea. ID the accessory, figure out the orientation, and then run displayport over the connector.
USB3?
This one's fun.
USB 3 is typically shown using about 8 wires. But it's not necessary to have all 8 wires at once. You only need 6 once everything's up and running to get USB3 speeds since the other 2 lines are for USB1/2 only.
Phone + USB2 controller + USB3 controller + Lightning switching chip + Connector <-> Connector + ID chip + Lightning switching chip + cable + USB3 connector.
Plug it in. ID the cable as a USB3 cable. Switch pairs 2/3 and 6/7 to USB2. Start up USB2.
Then check to see if the USB3 lines are connected (afterall, you could have plugged this into a USB2 port even though it's a USB3 cable, yeah?)
If the USB3 lines are connected, tell the phone to switch 2/3 to one lane, and 6/7 to the other lane of USB3. The other two wires are power, which were already in use. Now you have USB3 over Lightning.
In the future, is some crazy bus they wanted needs even more differential pairs, I can imagine them removing the hard wired crossover wires on the connector on 1, 4, 5, 8, and then making the phone connector double sided. Now you have 16 total lines, and you wait for a connection on 1, 4, 5, 8 of both sides (to maintain reversibility), and then negotiate switching both sides of 2/3, 6/7, and the other half of 1, 4, 5, 8.
Now you have 6 differential pairs possibly instead of 2.
This is what expandable means. Now you know why they didn't go microUSB.