There were many factors which led to their defeat. I will list some of them (in no particular order):

Corruption

Corruption in the KMT bureaucracy drove many to support the CCP, which had portrayed itself as a frugal and honest party that the common people could rely on. I'll let these two excerpts from the 1949 China White Paper speak for themselves:

Actually much of the apparent strength of Chinese Communism is due chiefly to the inefficiency and corruption of the Kuomintang and - with alarming acceleration - to popular loss of faith in the Government. One can be reasonably certain that with sufficient evidence of competent statesmanship and determined moral reforms the Government could recover its hold alike on the intellectuals and the masses. - Ambassador Stuart, China White Paper 1949 p.247

...young Chinese, college graduates, have gone over to the Communist Party, not because they favored the ideology of the Communist Party but because of their complete disgust with the corruption among the officials of the Chinese Government. China White Paper 1949, p. 383

Military Inefficiency/Poor Leadership

The KMT military, despite being more massive in size and better armed, suffered from inefficiency, petty rivalries, and poor military leadership, unlike the CCP military leadership, where commanders were always loyal to their superiors and Mao (who was not a military leader) ceding total control of the military to more capable men like Zhu De, Lin Biao, and Peng Dehuai. There were several examples where this proved fatal to the KMT.

Menglianggu

The Communists achieved a significant victory in April at Menglianggu, where Chen Yi’s East China Army wiped out General Zhang Lingfu’s “Most Courageous” 74th Division of 32,000. General Zhang, a “brave, honest, and loyal patriot,” a Whampoa and a Peking University man, together with four of his generals, committed suicide to avoid capture. Just fifteen days before his death, Zhang had sent a letter to the Generalissimo lamenting that Kuomintang generals and the military’s culture were "corrupt and hopeless.” Chiang felt the same way and he circulated the letter to all his top generals, which may have only further discouraged both the honest and the dishonest. At a ceremony commemorating those who had given their lives at Menglianggu, Chiang said the division was destroyed "most of all because our officers are reluctant to work and cooperate and instead are all thinking how to keep their troops safe and intact… the rescuing divisions were never where they had been ordered to be.”

• The Generalissimo, 373

The Manchurian Campaign

Wei Lihuang, who was appointed by Chiang Kai-shek to oversee the defense of Manchuria after Chen Cheng was transferred away (due to -surprise!- internal struggle within the command structure), refused to obey Chiang's command to rescue the strategic city of Jinzhou, which was under siege. Wei feared ambush and did not want to sacrifice his troops, instead opting for a defensive campaign (even though Chiang wanted him to go on the offense). When Jinzhou fell, 88,000 of the 122,000 troops surrendered. Changchun's garrison of 80,000 surrendered shortly after that too. Then when Chiang ordered Wei to withdraw from Mukden, Wei refused to obey the order and insisted on defending the city. Chiang had to personally fly to Mukden to direct the battle and he barely fled with his life. Wei's incompetence and his delay in evacuating (maybe he was paid off by the Communists? lol) led to the loss of 300,000 troops, of which 246,000 surrendered to the Communists and were incorporated into the PLA.

From the White Paper:

The same struggle for power and the intra-party rivalry which was hampering the National Government was vitally affecting the Government’s position in Manchuria. During the latter half of June the Consul General at Mukden reported as follows: “Rivalry (if not enmity) between General Hsiung Shih-hui, the Generalissimo's representative, and General Tu Li-ming, Commanding the Northeast Combat Command, is openly discussed and the absence of closely integrated military and economic planning is attributed to it.”

Pingjin Campaign

Another debacle for the Nationalists. After successfully capturing Manchuria, the Communists moved south and attacked Beijing (then known as Beiping) and Tianjin. The commander of Beiping Fu Zuoyi ordered Chen Changjie to defend Tianjin, which Chen did faithfully (refusing surrender three times and his entire garrison were either killed or captured). Meanwhile Fu Zuoyi decided to surrender Beiping to the Communists and ended up with a nice position in the new government for himself. One could argue that Fu deemed the situation in Beiping to be hopeless after Tianjin fell, but he apparently lacked Chen's loyalty to the KMT regime.

General Barr (a US military observer) noted this:

Their [KMT] military debacles in my opinion can all be attributed to the world’s worst leadership and many other morale-destroying factors that lead to a complete loss of will to fight. The complete ineptness of high military leaders and the widespread corruption and dishonesty throughout the Armed Forces could, in some measure, have been controlled and directed had the above authority and facilities been available.

Chiang's Own Ineptness

The Manchurian campaign should have never been fought. It was hopeless from the beginning. The Communists outnumbered the Nationalist there, they had fresh supplies from the Soviets, and they controlled the countryside. The KMT forces were concentrated in the major cities (Jinzhou, Shenyang, Changchun, etc.) and they had serious problems with their supply lines, lacking fuel and ammunition. In fact, the Americans were against Chiang sending troops to Manchuria. The resulting debacle to led to the surrender of hundreds of thousands of troops and large caches of weapons falling into Communist hands.

KMT Brutality

Could tie in with corruption. Many peasants suffered at the hands of landlords so dissatisfaction towards the KMT was high. This combined with the Communists' promise of land and an effective propaganda campaign was enough to win over the peasants. In the city, student demonstrations and worker strikes were all brutally suppressed by the KMT.

War Exhaustion

The KMT was the main combatant against the Japanese in the Second Sino-Japanese War, and they took a lot of heavy losses (the elite German trained divisions were almost all wiped out in Shanghai). Meanwhile, the Communists did not take part in any major offensives save for the Hundred Regiments Offensive, instead opting to preserve their strength and launch the occasional guerrilla campaigns. When the Civil War came around, the CCP had a much more efficient fighting machine than the KMT.

Hyper Inflation

A standard sack of rice sold for 6.7 million yuan in June 1948 and 63 million yuan in August. You can imagine people weren't too happy with this. The fiscal crisis of this period had a lot to do with over the top military spending, where 50-90% of the budget was devoted to the military. Chiang tried to control this, but he wasn't very successful.

This letter from Ambassador Stuart to the Secretary of State summarizes the situation nicely:

Sir: I have the honor to comment further on some of the spiritual or human factors in the Civil War as they are revealing themselves more clearly in the midst of rapidly deteriorating military and fiscal trends. The Communist organizers have a fanatical faith in their cause and are able to inspire their workers and to a large extent their troops and the local population with belief in its rightness, practical benefits and ultimate triumph. As against this the Government employees are becoming ever more dispirited, defeatist and consequently listless or unscrupulously self-seeking. This of course still further alienates the liberal elements who ought to be the Government’s chief reliance. Even the higher officials are beginning to lose hope. The effect on military morale is disastrous. In this drift toward catastrophe they clutch at American aid as at least postponing the inevitable. This is all that such monetary aid can do unless there is also among the KMT leaders a new sense of dominating purpose, of sacred mission, of national salvation, expressing itself in challenging slogans, arousing them to fresh enthusiasms, leading them to forget their personal fears, ambitions and jealousies in the larger, more absorbingly worthwhile cause.

Edit: Spelling