Before the snap, Michigan's linebackers show blitz, as does Jordan Kovacs who has come down from his safety position. These three will blitz the A gap, not unlike Michigan State did against Michigan all game.
As the ball is snapped, Michigan's defensive ends (Craig Roh and Jake Ryan) both drop off into coverage as Demens, Morgan, and Kovacs blitz the A gap. On the strongside of the field, you can see Avery and Blake Countess in man coverage against MSU's receivers. Roh is also assigned to man coverage against MSU's H-back. Ryan, lined up against BJ Cunningham on the weakside of the field is supposed to be in man coverage. You'll see in a minute that he is confused about his assignment on the play.
The blitzers are now getting into the backfield and will have a free run at Cousins (there aren't enough blockers to protect him). Roh is engaged with the MSU H-back. FWIW, I think he'd probably be called for defensive holding if the play had ended differently. On the weakside of the field, Cunningham is running behind Ryan. Cousins already recognizes that Ryan has missed his assignment as is getting ready to throw to Cunningham once he clears Ryan.
Morgan and Kovacs have blown by the MSU running back and are charging after Cousins. You can see Ryan pointing at Cunningham. Ryan thinks that this is zone coverage, and he's trying to alert Roh to the crossing route. Unfortunately, Michigan is in man coverage.
At the last minute, Ryan realizes that he's blown his coverage, but Cunningham is already wide open. The blitz was a step too late.
Blown coverage aside, this emphasizes the danger of running zone blitzes: if the blitz doesn't land, you have defensive ends in zone coverage against zippy slot receivers. This almost always ends poorly. This play, however, is especially perplexing. I can't understand how Mattison can call for man coverage from the defensive ends on a blitz, especially asking them to cover wide receivers. If they are assigned to tight ends, fine, they might be able to handle that. But asking Ryan to cover one of MSU's best receivers in man coverage is suicide. I think the design of the play calls for Ryan to jam Cunningham at the line of scrimmage so that the A gap blitz has time to land, but that's a risky call.
Other random observations
You can see the difference between this A gap blitz and the ones that MSU used against Michigan. As MGoBlog pointed out, MSU was timing Michigan's snap count and able to get into the backfield almost immediately. The Spartan defenders were able to build a full head of steam pre-snap. Michigan's blitzers, however, were slowly creeping to the line of scrimmage when the ball was snapped.
Another thing to note is the pre-snap alignment of Ryan, who is lined up close to a yard behind the other defensive linemen:
Though I'm not positive, I think Ryan or Roh has done this before. It's something to watch going forward. If the defensive ends continue lining up too far from the line of scrimmage on the zone drops, it will tip off the blitz and coverage to opposing QBs. It didn't here, and I'm not sure if it's noticeable enough in real time, but it looks to me like it is. Ryan's helmet is a full yard off the line of scrimmage. If opposing linemen start picking up on this pre-snap, they can tip off the quarterbacks to a likely zone blitz. It will also help them in pass protection.