Adam Rittenberg breaks down the geographic split in dividing the now 14-team conference into divisions. There were a few ideas floated at various times, but in the end the Big Ten settled on the one that was simplest.
Of course it isn't totally simple. One of either Indiana or Purdue will end up in the East with the other heading West. Michigan State fans are kind of bummed that their team isn't being considered for the move west, as that would open up a potentially easier path to the Big Ten title game in football -- not competing against OSU, UM, and Penn State -- as well as protect burgeoning rivalries against teams like Wisconsin and Iowa.
Things mostly worked out for Michigan. The Wolverines get both their biggest rivals as division games, The Game can stay on the last week of the season, and now it means a lot more because it could be for a spot in the title game.
What the Wolverines lose out on are games against traditional Big Ten opponents. There will be just four original Big Ten teams in the East division, with three newcomers (PSU, Maryland, Rutgers). Michigan is giving up a lot of really good games against Wisconsin, Iowa, Northwestern, and the others to play teams like Maryland and Rutgers on a yearly basis. A brave new Big Ten indeed.
EDIT: Here are the tentative new divisions, for anyone too lazy to click the link:
"East" Division
Maryland
Michigan
Michigan State
Ohio State
Penn State
Rutgers
Purdue or Indiana
"West" Division
Illinois
Iowa
Minnesota
Nebraska
Northwestern
Wisconsin
Purdue or Indiana