By putting Leno on at 10, that means that NBC could no longer put up a scripted drama in that time slot. The local stations depend on the ratings of those dramas so that they have an audience to watch them (for example, the people that just finished watching Heroes would stay on the channel for a little bit to watch the local news).
But Leno did not pull in the ratings, meaning that people simply stopped watching NBC before the local shows came on, so nobody watched the local news, so there was no one around to even watch Conan's Tonight Show.
NBC wanted to fix this by simply moving all the talk shows up an hour, meaning the local stations got their drama show and Leno remained on the air. Problem was that this made The Tonight Show go in after midnight, effectively demoting Conan back to his original Late Show position, after he had been promoted to 11:30.