Currently, obesity has become a global health issue and is referred to as an epidemic. Dysfunctional obese adipose tissue plays a pivotal role in the development of insulin resistance. However, the mechanism of how dysfunctional obese-adipose tissue develops insulin-resistant circumstances remains poorly understood. Therefore, this review attempts to highlight the potential mechanisms behind obesity-associated insulin resistance. Multiple risk factors are directly or indirectly associated with the increased risk of obesity; among them, environmental factors, genetics, aging, gut microbiota, and diets are prominent. Once an individual becomes obese, adipocytes increase in their size; therefore, adipose tissues become larger and dysfunctional, recruit macrophages, and then these polarize to pro-inflammatory states. Enlarged adipose tissues release excess free fatty acids (FFAs), reactive oxygen species (ROS), and pro-inflammatory cytokines. Excess systemic FFAs and dietary lipids enter inside the cells of non-adipose organs such as the liver, muscle, and pancreas, and are deposited as ectopic fat, generating lipotoxicity. Toxic lipids dysregulate cellular organelles, e.g., mitochondria, endoplasmic reticulum, and lysosomes. Dysregulated organelles release excess ROS and pro-inflammation, resulting in systemic inflammation. Long term low-grade systemic inflammation prevents insulin from its action in the insulin signaling pathway, disrupts glucose homeostasis, and results in systemic dysregulation. Overall, long-term obesity and overnutrition develop into insulin resistance and chronic low-grade systemic inflammation through lipotoxicity, creating the circumstances to develop clinical conditions. This review also shows that the liver is the most sensitive organ undergoing insulin impairment faster than other organs, and thus, hepatic insulin resistance is the primary event that leads to the subsequent development of peripheral tissue insulin resistance.