My understanding is that "knowledgeable outsiders", in executing trades, effectively make accessible whatever esoteric-but-technically-public information they had to the market, and so help prices adjust toward their correct value.
Knowledgeable insiders, on the other hand, can execute "hidden" trades that aren't revealed to the public market—and so don't provide information to the market. This distorts the market, moving the value of the instrument away from its true price.
Trades made with/without insider knowledge reveal the same amount of information to the market since the market doesn't know what made you decide to trade. It's illegal for a few reasons - it encourages quid-pro-quo relationships between investors and businesses, makes the good investment opportunities only available to those with privileged relationships (and magnifies 'the rich get richer' problem), and poses serious conflict of interest problems to everybody involved.
Well suppose the CEO of ACME Pharma knows a major drug trial just failed. If she sold massively and pushed the price down, wouldn't that cause the lower price to be reflective of the actual real valuation of ACME (which is lower because they don't have a major drug now).
Of course, I wouldn't want to be the guy on the other side of that trade. But then again a casual grandma probably doesn't want to be on the other side of the trade of a multimillion dollar research team either.
Knowledgeable insiders, on the other hand, can execute "hidden" trades that aren't revealed to the public market—and so don't provide information to the market. This distorts the market, moving the value of the instrument away from its true price.