Prison hulks came into use in 1776 by an Act of Parliament in England. The reason? The American Revolution.

Prior to 1776, Britain had used the American colonies as a convenient dumping ground for their undesirable prisoners. It was, in effect, an early Australia. However, with the rebellion against the Crown and its subsequent development into full fledged independence, England was no longer able to send convicts to those colonies. The result was a rapidly growing prison population that far outstripped the available resources for housing it.

The solution was to use decommissioned ships to house those prisoners. The ships were made completely unworthy for sea duty - the only boat-like qualities they retained were their ability to float. They were often tied up in harbours, and because of their lack of seaworthiness, they were rarely moved.

In Hong Kong, a boat ferrying prisoners to a hulk overturned, and all the prisoners drowned when the chain they were linked to pulled them under. The hulk was moved closer to shore so that the transport would be safer, and a hundred prisoners took the opportunity to escape. Because of their unique nature of being boats that weren't really boats, this severely limited their practicality. You couldn't, for example, stick a hundred prisoners on a prison hulk in the middle of the North Sea, because it wouldn't be able to cope with the weather. So the limitations meant that these hulks weren't as good a system as they sound.

The hulks were phased out of common* use in the mid nineteenth century. By this time Australia was opposing transport of convicts like America had, although with less revolution. England recognised the need for a comprehensive prison system at home, as transporting would no longer be possible. Thus the prison hulks, which were always meant to be temporary(as evidenced by the Acts which enabled them being two year measures), were shut down and the prisoners relocated to the land.

Another reason is that the nineteenth century was a century of more enlightened thinking - the idea of childhood being an important stage of development was emerging, and authorities started to look towards reforming prisoners rather than writing them off completely. This was important, as one observer noted, "Every evil that can be supposed to arise from the unchecked association of men of foul lives and unrestrained passions" did in fact arise aboard the hulks. The hulks could be used for youngsters - those who would be considered teenagers or preteens by todays standards.

The new thinking surrounding childhood development and the importance of the child in the future of the nation, combined with the knowledge of violence and complete lack of discipline on the hulks could also have been a factor in a drive to remove them from service by politicians and socially minded citizens.

To round up, while all(that I know of) prison hulks have been decommissioned, there were still isolated examples. In the San Francisco Gold Rush, the town boomed so quickly that the cost of building made a prison unfeasible. The solution was to use one of the many abandoned ships in San Francisco Bay to make a prison otu of. The idea was extended to other buildings, including a hospital. And after the end of prison hulks, there were still prison ships. Rikers Island in NYC has a purpose built barge serving as a prison ward, and is the best example I know of. The British also had a prison ship in the late 90s/early 00s, but all of this is within the 20 year gap so you'll have to research that yourself.

EDIT: Sources!

'A Paradise for Rascals': Colonialism, punishment and the prison in Hong Kong, 1841-1898, Frank Dikotter Crime, History and Societies at Jstor.

Gold Rush Jail: The Prison Ship "Euphemia", James P. Delgado California History at Jstor.

English Society and the Prison: Time, Culture and Politics in the Development of the Modern Prison, 1850-1920 by Alyson Brown, at Google Books.