Sooner or later, the writers were going to have to buckle down and make sense out of the Cylons. It's something that should have been done much earlier in the series, to be honest, but the explanation includes a certain rationale for why this was not done. Some will come to the conclusion that the writers had much of this in mind all along, but Ron Moore and the rest of the gang have never hidden the fact that they were making up a lot of it as they were going along.
The result is an explanation that somehow manages to work far better than it has any right to do so. By all rights, there should be numerous continuity violations throughout the tale. Somehow, only one major question threatens to tear the explanation apart, and even that could be reconciled with a little more willing suspension of disbelief. Unlike some shows that are practically ruined by the failure of the writers to bring it all together at the end (like, for instance, "Alias"), this cements "Battlestar Galactica" as a triumph.
Essentially, the story fits together as predicted, just with specifics where the vague hand-waving would have been. Back on Kobol, thousands of years ago, Humans created artificial life, against the warnings and prohibitions of their gods. Initially there were centurions, but eventually there were the "skinjobs". These Cylons rebelled, and in the ensuing war, Kobol was destroyed. The Humans went on to create the 12 Colonies; the Cylons fled. (At this point, they also had the technology for resurrection.)
The Cylons ultimately wound up on the path that the ragtag fleet followed, from the algae planet to Earth. At some point, they gained the ability to procreate on their own. With the need to resurrect no longer present for survival, the technology was "lost" and the Cylons spent much time in peace.
However, as that peace was coming to an end (either through self-destruction or incursion), five of the Earth Cylons read the signs and portents and began research into "resurrection". This enabled them to survive the holocaust on Earth. Their resurrection ship (either in orbit or at another colony) was the launching point of an effort by these "Final Five" to return to the Colonies and warn them not to create artificial life.
Unfortunately, the Final Five arrives too late, and the First Cylon War was already underway. The rebelling Centurions (the product of the events to be seen on "Caprica") were attempting to create their own "skinjobs", and were failing (as seen in "Razor", for example). The Final Five convinced the Cylons to end the war by appealing to the Centurion notions of an all-loving God and their desire for evolution. With the knowledge of resurrection in hand, the Final Five were in the perfect position to lead these new Cylons towards eventual peace.
The first new "skinjob" was John Cavil, created by the Final Five (specifically Ellen). With Cavil's help, seven more "models" were built. At some point in the process, however, Cavil came to disagree strongly with the notion of making the Cylons more like their oppressive creators, and sought to undermine the Final Five. At one point, this meant tampering with the replication process for the Sevens; no copies could be made, as the genetic template was destroyed. (This could have meant that the original Seven survived, however.)
Ultimately, Cavil betrayed the Final Five by killing them and tampering with the resurrection process, erasing their memories. The Final Five were reprogrammed with false memories of their lives as Colonials, and they were seeded into Colonial society. Since they were the evolved Cylons of Earth, they were just like Humans, right down to the ability to age over time. This was done shortly after the armistice (as marked by the first verifiable appearance of Saul Tigh).
In the roughly forty years that followed, Cavil concocted a plan for revenge against the Humans and the means to reproduce. He prohibited knowledge and discussion of the Final Five, and placed inhibitions on the free will of the centurions. Using the same means he used to "plant" the Final Five, Cavil sent copies of the new "skinjobs" into Colonial society to prepare for the destruction of the Human race. The plan, apparently, was to use the survivors in experiments designed to help the Cylons find a means to procreate ("The Farm").
It's not clear if the Cylons were determined to track down the ragtag fleet because they wanted to wipe out the last of the Human survivors, or because Cavil specifically wanted to eliminate the Final Five before they could find Earth and discover the truth. What does matter is that Cavil's unbalanced psychology explains almost everything that the Cylons have done since the beginning. (And one would presume that the upcoming film "The Plan" will fill in some of the blanks.) Certainly the events on New Caprica are a lot more disturbing!
Whatever the case, this is precisely why the Colonials and the rebel Cylons must forge an alliance. Ellen has given Cavil a pressing reason to hunt down the fleet. Once this information gets out (and it will start to spread), the Adamas and Roslin will have a solid reason to exonerate the rebel Cylons. Cavil will become the mastermind behind the destruction of the Colonies.
This all makes a great deal of sense, especially since it fits the notion that this is a cycle that always seems to repeat itself, with only minor variations along the way. One could even speculate, based on the 13 known models of humaniform Cylons, that the Lords of Kobol were "skinjobs" from an even earlier cycle!
More importantly in terms of the current mysteries, this could explain Starbuck's "special destiny". Seven, the "artist", might not have been destroyed. Instead, Cavil might have treated "Daniel" in the same way he treated the Final Five. Starbuck's father was described as an artist as well, and if the only Seven turned out to be Kara's father, it would explain why she was a little different and why she would have known, instinctively, about the mandala that was associated with the Final Five.
It would also explain her resurrection. If the current version of Cylon resurrection was encoded based on the knowledge of the Final Five, then it would have been based on the technology they used as the basis of their own resurrection thousands of years earlier. If Kara had the genetic markers of the current Cylons within her DNA, and if the original resurrection ship of the Final Five still existed, then it could have activated as a result.
That leaves a couple of mysteries still left to explain. First, how did Starbuck and her viper get from the maelstrom planet to Earth in the first place? That may never be answered. Second, exactly where was the resurrection ship of the Final Five? It couldn't have been in orbit of Earth; the fleet would have detected it. One simple answer could be buried in the episode, where it is suggested that there was a colony where the resurrection ship/technology might have been kept. If this is the case, Ellen might hold the key to a new home for both Cylons and Humans.
And the fleet will need a new home. Galactica isn't going to last forever, even with the Cylon technology helping to affect repairs. The entire season has been a slow and methodical process of bringing Cylon and Human together, and this is just another symbolic example. Roslin is unlikely to survive much longer, either. With the execution of the Quorum during the mutiny, Lee's suggestion marks the passing of the old way of identifying with colonies of origin. (In a way, this is symbolized by the defeat of Zarek's revolution, which was at least partially built around old Colonial rivalries.)
While most of the information fits, one major question stands out: the matter of Saul Tigh. The rest of the Final Five could have easily been introduced to Colonial society in the wake of the First Cylon War. But Tigh was supposed to have been a decorated officer during that war, which doesn't fit at all. It works to the benefit of the writers that Adama didn't know Tigh until after the war, and Tigh's recollection of the war could have been implanted memories. The only problem is that Tigh's military career, specifically his decorated past, would have been reviewed at some point.
If Cavil was able to pull off everything else, then it was possible for him to slip falsified information into Colonial records. Considering how much else Cavil was supposed to have done, I suppose it's just one more thing to add to the list. But since we know that the Cylon backstory was conceived after the fact, Tigh's war record is the kind of thing that stands out as a reminder. All things being equal, it's less satisfying when the final revelations require some massaging.
The other drawback to this episode is the sheer amount of exposition. The writers pull out a few simple techniques to keep up some tension and prevent the episode from becoming the fictional equivalent of a college lecture. It does work, but the bottom line is that this is a textbook violation of the "show, don't tell" principle. I'm not sure, given the time constraints, that it could have been avoided; further detail was even shunted into "The Plan", after all. It cannot be denied, however, that this episode was an instant brain-frack for devoted fans, especially those who have been wanting some explanation for the Cylons and their actions since the very beginning. It's clearly meant to set the stage for the remainder of the series, and it even clarifies "Caprica" to a certain extent. There's not much more that fans could ask for at this point.