I think several things added together explain the pick:
1. Romney knows he's losing. This is not the pick of someone that thinks he's winning.
2. This is Romney's least-damaging analysis of the situation and something of a hail mary ... at halftime. What are his other options? Rubio was boxed out by Obama's DREAM act adoption, but he might have brought FLA. Portman made sense, since he might've brought OH, but there's the whole "how is this guy different than Bush?" thing since he was the budget secretary. Pawlenty and Jindal are the same guy, one only slightly more exciting than sour milk, and he ruined his chances years ago with the SOTU response (lol). That leaves outliers and just silly last-effort attempts, like Trump, Patreus, Jeb, and then others that also aren't ready/aren't willing to do the job.
3. Romney had the Ryan plan around his neck anyway. This is actually quite Rovian. First, bring in the guy to defend it, then run from it, then accuse the President of the same things in Ryan's plan (see the bit about cutting medicare, which actually is in Ryan's plan).
4. "Diversity"
5. A gambit to go after vulnerable northern states? I'm not sure this makes sense, but hey, why not Bachmann? Why not Scott Walker? Why not one of the bikers at Sturgiss? Were the neo nazis in Idaho not returning your calls?
6. Or, this really is a terrible pick made by a terrible candidate and a last-ditch effort to make a good run of things, and maybe save his post-run career at the same time. If the plan was to blame Romney for not being conservative enough, now they'll have a harder time doing so.
My theory? All of the above really. Mitt knows he's losing, it's the least-terrible realistic option, it's a home run swing, there is some stump tactics going on here (I guess), and it's about saving face. I think it clears the way for Jeb in 2016, reduces the tea party to further rubbles, and gives Romney his best chances at a post-election political career somewhere else, if he opts-out of taking over Bank of America or something similarly disgusting.