This is not the true ending of the movie, but as we noodled it out, we realize that this would be the best scenario to bring The Matrix to a compelling end that would satisfy the humans and the machines. (And hopefully the public.)

The history of the war with the machines.
Since both man and machine created immeasurable sin against each other, at a certain point in the war they both realized that both sides would be eradicated if something weren't done to save the planet, already ravaged by war.
OR
The race of man did conquer the machines, after a giant EMP (Electro Magnetic Pulse) bomb was created that wiped the Earth of everything electronic. Realizing that the Earth was in ruin because of their folly, they decide to construct the Matrix to "incubate" the Human race.

We're going with the second one because the first one would not lead to the creation of the outer Matrix, and an illogical sense of creating it for the machines, which is brought up later.

The Matrix was created by man.
Once they conquered the machines with a global EMP they realized that to continue living on the decimated planet would eventually wipe them out due to lack of sun, vegetation, and food. They also realized that the only way they could survive was a symbiotic relationship with the machines. (This is further hinted by the conversation with one of the council in the engineering section of Zion, telling of the reliance we have with each other, perhaps a foreshadowing?) They created the Matrix and sacrificed their own bodies as batteries in hopes that this giant stasis pod would allow the Earth to heal itself; we are after all, "a virus" to the world. In order to create the illusion of the world they made the Architect to create the worlds that the people currently live in. This was made over a few times so that the majority would accept it and could be most efficient as batteries, (Smith and the Architect talk of previous Matrixes) but eventually was created well enough to satisfy most of the people, 99% of them. They also assigned the Architect to create the outer world for that 1% that made the humans, or unbelievers, feel "unplugged".

The Box in a Box.
As it stands, Neo has shown power over the machines in the "real world", which suggests that they aren't in the real world at all, but another fabricated Matrix. For specifying reasons let us call the inner, today's world Matrix "Green" and the outer, post-apocalyptic Matrix Blue because of their tints as they are shown on the big screen. Also it would be impossible for Agent Smith to enter and control a body in the Blue. Why would the architect create a completely different Matrix (Blue) in order to accommodate 1% of the population? It seems that maintaining one matrix, Green, takes enough time, energy, and resources, then why do it all again for the 1% that don't accept the Green? It doesn't sound very efficient from a machine's point of view.

The One.
The One is nothing more than a program. He is the One program that was created to help machines understand humans and human nature. Let's look at the facts:
Factoid #1: Neo's room number is 101, which is five in binary, but on a zero based index like computers are, that would make him six.
Factoid #2: His name in the Green is Anderson, which is pointed out as the "Son of Man" by the commentary in the first movie. He is the child, the program, made to understand the why of humans.
Factoid #3: When talking to the Architect, Neo was shown the other five Neo's reactions to his proposal, yet all the other Neos looked the same. There's almost no chance that as a human Neo would look the same each time, based on genetics.
Factoid #4: The Oracle said that every program, once it's finished does one of two things, returns to the core, or becomes a rogue program. Previous Neos returned to the core, but this one decided to become a rogue.

What will happen.
As a rogue program Neo will fight for what no other Neos could fight for, love. He said he couldn't do anything without her. As his understanding of why becomes apparent, he will understand why he has exceptional powers in Green, as well as powers in Blue. He is the key to freeing everyone from the Matrix, and awakes everyone from suspension to a lush new green Earth. This "epiphany", much like the realization that he is the "One" in the first movie will be the key to unlocking and opening the Matrixes, like a crash or a virus. The machines and humans need to understand each other so that there is not another war and to show them how truly they have become dependant on each other. This is what the One's mission is, and upon that decision to return to the core or become a rogue, the if-while loop can be broken. Machines will also finally understand humans, through the shown testament of human spirit and emotion that Neos (or just the one Neo, since the others return to the core) experiences and a true relationship with humanity can then be established. Once humans wake up, the machines can nurse them until they are able to function as regular human beings. Love conquers all.

Why this works.
It's apparent that the 1% in the Blue will find out that they are still in the Matrix and crave that freedom. Even if they do manage to break out of that and still enter the real world, what's to stop real sentinels from simply wiping them out? If Neo does save everyone and they all awake to send the machines into "survival" mode, what happens to all those people? There are now billions awake with knowing that their reality is nothing, and now they must live in this bleak and desolate future. What about developing muscles for everyone again? What about food for everyone? The deaths alone from the shock would be catastrophic. Why would filmmakers want this? Other speculation is that this is all a dream of Thomas Anderson (Neo). He fell asleep and this is all a drug-induced reality. That also most likely wouldn't make the public happy, all that work was just a dream, and everything that was built up over three movies was just an illusion. I certainly would be pissed off.

- Nick Healey 05.19.03