tl; dr: Ill health + politics.

Diocletian was 60 at the time of his abdication. In the years leading up to the event, he was running around managing campaigns, which extracted a toll on his health - the year before he abdicated he was in the Danube with Galerius campaigning against the Carpii. He fell ill, and needed a litter to get around. He must have recovered, because he was healthy enough to travel to Nicomedia that summer, but he collapsed after a public ceremony dedicating the circus there. Subsequently, he pretty much kept to himself over the winter, most likely because of chronic illness. Through the winter there were many rumors of his death, which the Palace had to publicly refute, when Diocletian did show up in public early the next spring (most likely to refute yet another rumor that he had died), he looked thin and wasted (Barnes, 1984).

Around that time (in spring) Galerius returned with a plan - he wanted to reconstitute the Tetrarchy (Galerius, Constantius, Severus II, and Maximinus), and force Diocletian to quit (Rees, 2004). He had popular support, and must have felt reasonably confident of his chances of success. Although there is no clearly recorded historical narrative, the two must have had discussions, and Diocletian must have seen the writing on the wall, because he called his generals and troops to assemble on May 1, 305 on the same hill he had been proclaimed Emperor, and told them that he was weak (his illness?) and that someone stronger than him needed to rule (Barnes, 1984). And thus he abdicated.

Edit: Interestingly Diocletian also convinced Maximian, his co-emperor who was Augustus at the time, to abdicate with him.

Barnes, Timothy. Constantine and Eusebius. Harvard University Press (1984)

Rees, Roger. Diocletian and the Tetrarchy. Edinburgh University Press (2004)