Historically, "damascus steel" is usually synonymous with (or a translation of) "watered steel", steel that has a pattern (which might require etching and/or staining to show clearly). Both pattern-welded and patterned crucible steels were included. The former, pattern-welded steels, are widely used today for decorative purposes on knife and sword blades. The latter, patterned crucible steels, is what was lost.

Crucible steel (AKA wootz, pulad, bulat) had significant impact when it was developed. It allowed the consistent production of steel with an approximately predictable carbon content. Typically, the process was used to make ultra-high carbon steels (UHC steels), with carbon contents between 1% and 2%. This led to export industries, and wider use of steel (as opposed to wrought iron). India, Sri Lanka, and Central Asia, especially the Fergana Valley and Merv, were major centres of production and export.

However, since steel was already available, the ready availability of crucible steel was not a revolutionary change. E.g., al-Kindi's book on swords (original text, translation, and commentary are available in Robert G. Hoyland and Brian Gilmour, Medieval Islamic swords and swordmaking, Gibb Memorial Trust, 2006) discusses various types of swords, including pattern-welded blades and blades made from crucible steels - the pattern-welded blades on a par with crucible steel blades), and comparison of the various Ulfberht swords finds that while the (probably) crucible steels ones are often high-quality, the pattern-welded ones are also often of high-quality. Further, the pattern-welded Ulfberhts typically have harder edges than the crucible steel Ulfberhts, while the crucible steel Ulfberhts are more likely to have broken blades. Still, increased availability of steel was important.

The impact noted above was due to crucible steel in general, rather than only patterned crucible steel. The difference? Some crucible steels develop patterns due to the carbides that form in the steel due to the very high carbon content forming visible bands, while in others the carbides are uniformly distributed.

What factors led to its loss?

Traditional crucible steels stopped being produced because modern industrial steels were cheaper. (Much earlier, crucible steels stopped being produced in China because steel produced by decarburising cast iron was cheaper.) If new cheaper sources of steel had not been available, crucible steels would have continued in use.

Notably, the technique of steelmaking by combining wrought iron and a course of carbon (often cast iron, which is typically 3-4% carbon) in a closed crucible was not lost. Rather, it was adopted as a Western industrial steelmaking method in the 18th century, and continued in use into the early 20th century.

What was lost was the technique of making patterned crucible steels, and also some techniques for working UHC steels via traditional hand-forging. These techniques were rediscovered in about 1980, but haven't had a major impact (since other UHC steels were already available, and the pattern is merely cosmetic).