In this work, we use molecular dynamics simulation,to explore the physical principles governing the polarity of room-temperature ionic liquids. We use the calculated absorption spectrum of the solvatochromic dye molecule betaine-30 as a proxy for polarity and characterize the solute-solvent interactions responsible for the solvatochromic shift. We analyze specific solute-solvent interactions and discuss the complications posed by the proximity of counterions in solution. We also explore the question of competition between solute-solvent and sol vent-solvent interactions and find evidence supporting a recently proposed scheme for control of solvent polarity. Finally, we show that nonspecific electrostatic solute-solvent interactions are screened,by the ionic solvent, dictating that the thermodynamic properties of solvation are determined by local interactions. However, thermal fluctuations create transient long-ranged solute-solvent interactions that could be important for chemical kinetics.