When an insured car is totaled, it now belongs to the insurance company (they pay the owner for the car). The insurance company send it to an auction. Buyers aren't there looking for scrap. They either buy the vehicle to repair it, get a salvage title, and re-sell it, or, a company like LKQ buys it to strip off the good parts and sell them to auto repair shops (many insurance companies specify LKQ (Like Kind & Quality) parts (i.e. used parts off a wrecked vehicle) in their repairs.

Why would anyone buy it to repair it if the insurance company has deemed the cost of repair to be higher than the value of the car? Because they base it on the retail cost of the repair. A body shop, or someone doing the repair themselves can do it for much less than the retail cost. As a single example, a body shop would charge somewhere in the neighborhood of $5,000 for a complete paint job. If I paint my car myself, I can do it for a few hundred dollars in materials.