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Why did connecting the IBM PC 3.5" FDD backwards cause the problems it did?

When the 3.5" FDD was introduced for the IBM PC and compatibles (or possibly earlier), someone made a decision to make the data cable between the controller and drive unkeyed. This, of course, meant that you could plug it in the wrong way if you weren't paying close attention to which side pin 1 was on.

If you did plug the cable in the wrong way, two obvious user-observable things happened:

  • Neither the floppy disk drive nor the controller broke; if you realized the error of your ways in time, all you needed to do was flip the cable over and give it another try, and no harm came of it
  • When the system was powered on, the disk drive's activity light would be continuously illuminated

What was actually going on inside that floppy disk drive, and why?

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