M-Reloaded
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So here's my take on what happened in Matrix 2. I think it's pretty cool. I think the difficulty in understanding it owes partly to it being the middle movie of a trilogy and partly to the fact that they were re-establishing the sense of mystery they had in the first movie through enigmatic figures like morpheus and the oracle and smith.
The big unexpected twist in the sequel is that the machines expected the One to come about, have in fact contributed to his creation, and on top of that have a well-established means for dealing with him.
The prehistory suggested by the Architect is that the original matrix had to be changed to give human beings more choice (hence more conflict) or their minds would not accept it as reality. To do that a machine designed to study the human psyche (the Oracle, I think) helped to redesign it. But once choice for humanity was introduced into the system, the system was no longer perfect and tended toward breakdown in the form of human freedom from the matrix. The potentially catastrophic human freedom from the matrix was thus parceled out in small doses to most people and the rest was concentrated into one person (what the architect calls 'a remainder'--the One) who the machines thought they could still control in a special way. Their means of control is this: the humans of Zion find the One and involve the One in a fight for the freedom of all humanity. The machines lead the One to the Architect, who threatens to destroy the matrix, killing all the people in it (the bulk of humanity) unless the One leaves the matrix. The One always chooses this to spare the bulk of humanity from elimination. The machines thus use the One's power of free choice against him. The machines then rebuild and re-encrypt the matrix to exclude the One and in real life they destroy Zion, which has already served its purpose of finding and acculturating the One to the save-humanity / leave the matrix choice. They will only need a new Zion in the future to acculturate the new One that will develop in the next iteration of the matrix (acculturate him to his savior role so that he'll make the predictable choice and leave the matrix when the time comes). So they allow the One from the last matrix to start rebuilding Zion using humans selected from the matrix. This cycle happens over and over again in a machine-like repetition over centuries with a new Zion developing and a new One developing, then being purged. It's like changing the oil in a car engine once too much dirt (human freedom) collects in it.
However something unpredictable (to the machines) has disrupted this repetitive order--love and human affection (not species-love, but individual love, which a machine can't understand). Neo's love for Trinity causes him to make a different choice for the first time in the six iterations of the matrix (also remember that the Merovingian observed that Neo possessed more skill than his predecessors).
Importantly, a number of programs in the matrix have also over time been affected by human emotion by virtue of being designed to manage humans. These are: the Oracle (who was designed to study the psyche), the Merovingian (another 'old program' designed with emotion to interact with humans--marked for deletion but refusing to be deleted out of a human sense of individual self, exercising choice, individual will, not species-wide or machine-wide will), Persephone (ditto), all the other ghost programs marked for deletion (including the key maker), and Agent Smith. It seems that the ghost programs have been helping out Neo's predecessors each time, which makes sense, since they are choice-loving, human-type programs. Maybe Persephone has acted differently in this iteration too to help Neo out. But I feel sure that the Oracle and Agent Smith and something about Neo himself has perturbed the balance and set Neo and humanity on the road to liberation.
The Oracle has made a prediction that Trinity will fall in love with the One, and in so doing, the Oracle has perhaps caused the chain of events that leads to their falling in love and to Neo making a different choice--the choice to re-renter the matrix after the Architect encounter. (The Oracle has before caused her own predictions to come true--causing Neo to knock over a vase in the first movie, causing Neo to save Morpheus by giving him a false prophecy that he was not the One.) So Neo chooses to re-enter the matrix, calling the Architect on his bluff or forcing him to actually destroy the matrix and all the human batteries in it. This would introduce a major change in the machine war against Zion--they'd have little energy to fight it.
Agent Smith has stated that he has become egoistic like a human being, fighting for himself and not for the machine species--he is now a new unpredictable factor on the side of choice and thus on the side of disrupting the repetitive order that enslaves the human beings. Smith is the key to whatever happens in the very end. He has uploaded himself into a human being in the real world (named Bain, I think) and tried to sabotage Neo's efforts against the machines. However, Smith's 'wireless' mental link with Neo--created by their 'file-swapping' encounters in combat in the matrix--looks to have enabled Neo to hack into the machines in reality and control them, perhaps by a path through Smith, through the matrix, to the literal machines.
The machines are now faced with an alteration in the cycle of enslavement. Even if the real world of the first movie turns out to be another layer of the matrix (possible but I think unlikely), the important thing is that the cyclical relation between the inner matrix and the outer matrix (or the matrix and reality) has been altered and so Neo and humanity now have a new chance at liberation.
I think it's an extremely interesting story. It creates the feel of an imaginary machine culture, and so has done a uniquely good job of characterizing a made-up enemy of the human race. Most of all, though, it has taken a mostly comprehensible future history and spun from it a mythic tale whose mythic properties are not superfluous or gratuitous but directly implied by the sci-fi premises. E.g., there is an Oracle not just for fun, but because we're in a computer-simulated reality where if someone (or something) understands enough of its coding, that person can predict what will happen. Its thematic ruminations on choice and slavery are not gratuitous but implied by the story itself--a conflict between egoistic freedom-loving animals and direction-following freedom-averse machines.
The weakest part of the imaginary world of the matrix is to me still something that was introduced in the first movie not the second: the notion that the machines need the human beings for energy. This makes no sense at all. By the law of conservation of energy, whatever energy comes out of a human being is energy that went into it. So why don't the machines just get the energy from the same source the humans got it from? We're led to believe that humanity has blacked out the sky, so there are only two sources of energy left: geothermal and nuclear. (Though it's unclear why machines that can build a matrix and flying sentinels can't fly into space and collect solar power above the sky. In fact, why don't they go live in space, since the cosmic radiation can't harm them in the same way it does humans according to the Animatrix stuff.) Anyway, whatever energy the humans have to impart to the machines has to have come from one of these sources to begin with. So why don't the machines just get it directly from geothermal or nuclear energy?
The first movie states that the machines somehow use human bioelectric energy to create nuclear fusion. So according to this premise, they get more energy out of human beings than they could from geothermal energy or the energy of nuclear fission. Fine, I'll buy it for the sake of suspension of disbelief. But this is the most magical part of the whole story so far. More so even than the weird 'wireless' connection between the brains of Neo and Smith.
Some questions this version of events raises or leaves unanswered with possible answers:
1. why don't the machines just level Zion completely and when the One presents himself, unplug him and kill him? It seems that the One can't be unplugged, can't even be defeated in the matrix (in Reloaded, Smith watches the other agents lose to Neo and says something like, 'it's happening as it always has'). If the One is unplugged or killed, the machines lose the 'freedom remainder' that's necessary for the integrity of the matrix and the matrix is catastrophically destroyed, losing all the human batteries.
2. so why do the machines bother fighting him? They can't be sure who is the One until they fight him. He might be a lesser hacker / rebel who does need to be eliminated. (Remember the guardian of the Oracle says 'you don't really know someone until you fight him.')
3. why does the Merovingian fight Neo (or have his henchmen fight him)? The Merovingian appears more human than the other machines (with his taste for French swear words and beautiful women), but he is also satisfied with the current system. He doesn't want the matrix to be destroyed. When it has been rebuilt each previous time, he's survived by living in this interstitial back-door area. Furthermore he must fight whoever tries to take away his key-maker because he can't be sure it's the One and hence can't be sure it's a futile fight for him.
4. why does the Merovingian have a key-maker? Seems pretty useful for him since he's a rebel ghost program who needs to navigate the back doors to survive.
5. why does Neo need help from the ghost programs (the key-maker) to get to the architect? Why doesn't the Architect just contact him and bring him there? It seems that the only way to the Architect is through one of the back-doors, so Neo has to go into this interstitial space (where the ghost programs also live) to get to the Architect. Also it's possible that the One's path must always involve maximum freedom from the matrix, since that's his power and his goal, so the One is fated to choose that path to the out of bounds back-door land.
6. why does Smith appear after Neo meets the Oracle? The only interesting thing about this is that Smith has found his way into the interstitial / back-door area where only freedom-loving machines go. It shows that he's free and no longer an agent. The Oracle doesn't warn him because she doesn't know it's going to happen--Smith is an independent agency now. Other than that, it's just sort of a patch of lazy writing. It happens in movies all the time that the next scene is initiated by a chance encounter. But we could argue that Smith was following Neo and waiting for his chance to attack.