There is no one technical reason for this, but there are some things that deal with the technology/requirements of the time when whole song fade outs were more popular.
Quoting from this NPR article on the subject:
"I'm pretty sure fade outs did not occur during the days when 78s were used ... since in those days music was recorded directly to disc. Once studios started using magnetic tape for their masters (early-mid 1950s), it would have been possible to do the fade out in post production mixing sessions." - Tom Larson
"Most time(s) it was because the arranger didn't have an ending, or to shorten the arrangement for air play. Remember, back then singles wouldn't be played if they were longer than 3 minutes." - Al Schmitt
"The fade-out became a way to end the record in a manner that perhaps suggested there was more to come." - Dan Daley
"I believe that one of the advantages of fade-outs was that we could repeat the hooks and drive that message home." - Elliot Mazer
"The fade happened because we had to give the DJ a cue that the record was ending, so he could talk over that and segue into the next record" - Ron Albert
Then again, these are only some possible reasons. The true reason in many cases could be a stylistic, "this sounds good to me" or "I can't think of a good ending" as well.
For more detail, check out Billboard's post on the subject.