| When you dont have enough insulin in your system to allow blood glucose in to be used by the cells you body needs to get energy from somewhere so it starts to break down fat and protein stores in the body. This happens when you are losing weight from dieting. eating extreem low carb diests, and during sickness as well as when you dont have enough insulin Most people that have ketones because of dieting have low levels, When the body starts to break down fat and proteins in the body acetone builds up in the blood stream (sometimes people with dka will have breath that smells like nailpolish remover for that reason) and the kidneys try to filter it out. when the kidneys process acetone it changes it to ketones, which is why we test urine for ketones. Small amounts of ketones in teh urine with normal blood sugar levels isnt necessarily something to worry about. ketones accompanied by high blood sugar are.
This is how I understand it. I'm sure if i'm misinformed someone will correct me :0 and bet if you go to nih.gov or webmd or emedicine one of the sites will have better, more detailed info about the process. | 
