In particular, too many androgens (male hormones) are produced. It is not well understood why or how the changes in the hormone levels occur, but these changes can result in:
Each month the ovaries start to ripen a number of follicles, which are actually cysts, tissue sacs filled with fluid and hormones (mostly estrogen.) One or two of these follicles grow stronger than the others and produce and mature an egg. When ovulation is triggered by a surge in luteinizing hormone (LH), the egg in the dominant follicle is released into the fallopian tube en route to the uterus, where either it is fertilized within 24 hours, or it regresses. The now empty egg sac becomes a corpus luteum producing large amounts of Progesterone (and smaller amounts of ESTRADIOL) to support the pregnancy. If implantation in the uterus does not occur within 2 weeks the corpus luteum usually regresses (via a process called luteolysis) and the uterine lining is shed, seen as menstrual bleeding.
With PCOS
Alterations in hormonal pathways cause the ovaries to form a number of follicles on the outer layer (cortex) of the ovary. Follicles (egg-containing sacs within the ovaries) normally release one or more eggs during each menstrual cycle - called ovulation. In PCOS, the eggs in the follicles do not mature and are not released from the ovaries. Instead, they can form very small cysts inside the ovary. The ovarian cortex thickens and the egg has difficulty breaking through. No single follicle becomes dominant and ovulation can't occur.
Unlike larger ovarian cysts (follicles > ~ 2 cms), PCOS cysts do not cause pain and rupture, but because a woman with PCOS doesn't ovulate, hormonal cycles are disturbed causing high levels of estrogens and androgens (E.g.Testosterone and DHEA), yielding symptoms of estrogen and androgen excess.
NIH concensus, from 1990 conference: