[Admo]

Basically (you have to really pay attention to a lot of scene snippets to figure it out, you have to play it a few times), back in the final battle of the Mandalorian Wars, the Exile was commanding the attack on Malachor V, and was supposed to be joined by Revan. Revan's forces were delayed elsewhere, I don't think we find out why.

The tide of battle was working against the Exile and the Mandalorians were close to winning. Bao-Dur comes out with this mass-shadow generator, and as a last resort you order him to activate it, killing everything still on the planet in an instant.

Thats what I gather, although there are still some little niggling points I can't work out. For example, Bao-Dur says it will undo the damage he did at Malachor V. I can't work out what he means by this, whether it is because the "Sith" are entirely destroyed, who appeared as a result of the Mandalorian Wars. Or whether he means he is clearing his conscience or something. Either way its obviously not physical damage.