First off, I'm talking about temperatures where you have liquid precipitation.
My understanding of how the layers work is really my understanding of how they work for me and how I use them.
I normally have a pack and only wear the base/insulation layers I need, and try to minimize sweating. Extra layers stay in the pack. Besides layering I use zip-front base layers and shirt to ventilate, gloves, and hat that go on/off without stopping to fine tune heat retention. I stick to none or lightweight long john bottoms because you can't adjust those on the move.
Base layers should wick sweat away from the body, and both base and insulation layers need to be hydrophobic, not clump or collapse when wet, and insulate when wet.Insulation works by trapping dead air, and it generally works best without liquid clogging the pore space; water is not a good insulator.
Unless you're sitting on the ground where you lose heat through conduction, or at night where you lose it to the sky through radiation, you'll be losing most of your heat through convection and evaporation.
Good hydrophobic base and insulation layers will insulate when wet, although not as good as when dry, as long as you don't have significant convection, which equates to being cooled by moving air. If you've got wet insulation and can't get out of the wind you'll be losing heat through both convection and evaporation, not a good combination. So a windproof shell over wet insulation will cut down on both and keep you warm, and if you're already warm and/or on the move you obviously take off the shell and let the moisture evaporate.
If you have a windproof shell, you may as well make it waterproof or water resistant and not get your insulation soaked in the first place. It's easier to stay dry (most of the time) than to get dry.
Like a lot of others I don't put much stock in waterproof breathable shells for keeping inner layers from getting wet with sweat. Water vapor from your body is warm and the outer shell is cold so no matter how permeable you'll get some condensation in the shell.
The reason I carry a shell is to cut down on both convective and evaporative heat loss. And to keep my insulation as dry as possible.
