It's when the users start taking care of IT issues themselves. Maybe the name comes from the Shadow Cabinet in England?

Where it might not be obvious is that IT in this context is not just pulling wires and approving tickets, but is "information technology" in the broader sense of using computers to solve problems. This could mean creating custom apps, databases, etc. A huge amount of this goes on in most businesses. Solutions can range from trivial to massive and mission-critical.

It's where you have processes etc set up to manage your IT infra, but these very processes often make it impossible / too time consuming to use anything.

The team that needs it ends up managing things itself without central IT support (or visibility, or security etc..)

Think being given a locked down laptop and no admin access. Either get IT to give you admin access or buy another laptop that isn't visible to IT and let's you install whatever you need to get your job done.

The latter is often quicker and easier.