There has been a lot of debate over this, but I've always sided with the 'Mask' theory. 'Mask' is a discipline of Sith Alchemy:

A Sith Alchemist could use the Mask to literally reshape an individual's appearance, altering a body at the molecular level. Very little was beyond this technique, limited only by the craftsmanship of the user. Features, age, disfigurations, even species could be concealed with the Mask (though the latter would require an incredible amount of skill to accomplish convincingly). Owing to its molecular nature, the technique lasted until altered, and even a thorough medical examination would not be likely to reveal anything out of place, unlike the tell-tale scars of surgical alterations. ... The technique wasn't entirely without risk. The process itself could be incredibly painful, and complications from the procedure could result in serious injury or even death. There was also one rarely-encountered oddity with the Mask technique. As it was a product of the dark side of the Force, on rare occasions it would resonate when exposed to powerful blasts of dark side energy. If the subject was not careful, the Mask would literally melt away, horrifically disfiguring the individual and making further attempts at concealment (even with the Mask) difficult.

Now, this was invented for the Starwars Roleplaying game.... But it seems consistent with Lucas' vision; he was a nasty, evil, much-older-than-he-appeared villain, who hid his appearance under a pleasing facade to facilitate his political actions. One of his own evil tricks, reflected back at him, was able to dismiss his disguise.. But he turned this to his advantage by claiming the Jedi had 'disfigured' him.

(Note: The Role Playing Games story (but not stats) are considered 'C-canon.')