I have been having a lot of trouble with this...

See if this link helps:

ScienceDirect - International Journal of Pharmaceutics : Modification of physicochemical and mechanical properties of shellac by partial hydrolysis

As far as I know, it's a PHYSICAL CHANGE with no chemical equation involved.

I agree. One of the great advantages of finishing with shellac is that it can be reworked after it has dried by simply adding more solvent (usually an alcohol, like ethanol). On the other hand, it can also be a big disadvantage if the finished piece will ever be exposed to solutions containing alcohol.

It could be that the OP is talking about the long-term chemical change of shellac in alcohol (it eventually goes bad). If I remember right, it has to do with carboxylic acids changing into esters. I'm sure Dr. Bob could shed more light on that.

Like a number of other natural resins (amber, copal) shellac is a reactive material and its not surprising that, in solution, it changes with time. It may esterify with the solvent, might transesterify as well. I don't know for sure. However, whatever reaction takes place is not due only to "dissolution in ethanol".