Some ask Admin to remove it because they don't have time anymore. There are also minimum requirements (such as a minimum number of issues to flag/solve in a time period) and if you can't maintain that minimum requirement, you lose your status. Some lose it because they don't follow the rules to the letter. (They are held to a higher standard than the regular users, so whereas a regular user might get away with answering in a rude or offensive manner, a moderator will not, even if they have the anonymous flag on.) I don't think I've ever heard of a mod losing their status for the "abuse of power" which seems to be a favourite complaint amongst some users.
Some moderators simply don't have time for the position anymore so they let the admins know and the admins remove their status. Mods need to be active on the site.
Other times, if a moderator is continuously hiding posts that the admins are putting back on the site, they will lose their moderator status. We have certain guidelines that we must follow regarding what should be hidden from us and what should not be. If a mod is just removing anything and everything (such as simply hiding posts they disagree with, but these posts do not break any of the rules), the admins will strip them of their status.
Moderators also must behave in a way that is respectful and not rude to other users. If a moderator seems to be posting antagonistic posts or causing problems with other users, they will lose their mod status.
Some users around here seem to think that mods can get away with anything which isn't true. The admins closely monitor us and what we hide so if someone is behaving in a poor way, the admins will take action.