The deep insight of Anderson is that the difference between insulators and conductors is not the energy spectrum. In fact the entire picture we are taught in introductory courses is highly misleading. [Note: Everything I am going to talk about will be about single particle effects, so no interaction.]
First lets just remember the introductory picture. We have a perfect crystal, so we get energy bands. We fill those bands up with electrons. In the case when a band is partially filled we get a conductor. In the case when all of our bands are completely occupied, so that the Fermi level lies in the gap, we get an insulator.
Now that problems: finite conductivity is entirely dependent on impurities. In the absence of impurities momentum is completely conserved. If I give the carriers any momentum, they will never lose it. Therefore a finite current can never dissipate, which is the same as saying the resistance is zero. Since there will all always be some carriers at any non-zero temperature, in the absence of impurities all materials will be "perfect conductors".
So it is clear that to make any sense we need to add impurities. However if we add impurities the nice energy band picture disappears. Since we just added random stuff to our Hamiltonian there is no reason we shouldn't be able to to find a state of any energy if we look hard enough. Obviously there will be more states in what used to be the bands, but there will also be states in the gap. In short the bands will blur together.
But if the bands blur together then there is no longer any notion of a gap - so what could possibly separate insulators and conductors? It is not the electronic energy spectrum, it is the electronic wavefunction themselves. Since there is no longer translational symmetry these are not restricted to the Bloch form. There are two main possibilities:
1) The wavefunctions near the Fermi level are extended, i.e. their magnitude is roughly constant over the entire system, like a plane wave. This is a conductor.
2) The wavefunctions near the Fermi level are localized, i.e. their magnitude decays roughly exponentially as you go out from some point. This is an insulator.
This is what actually distinguishes insulators and conductors. Going back to the band gap classification of materials - why does it basically work? The reason is if one adds disorder to a perfect crystal, the states that are added in the gap and near the band edges are usually localized states, so thinking about the gaps leads to the correct answer. But this is not the direct physical mechanism.