There's no mystery. It stopped selling well because of the iPhone. And this is not another "smart phones are killing hand held gaming" rant. One of the PSP's major selling points, being a portable movie player, was positively destroyed once the iPhone hit the market.
People don't like to admit it, but the biggest thing that sold the PSP was being able to watch movies on the go. It was the only popular device at the time that could do that, so it was revolutionary. That died when the iPhone popularized itself, and we can see that ripple in the Vita. People like to pretend that the PSP was a successful gaming handheld. It wasn't. It was a successful portable DVD player.
That much becomes painfully obvious when you compare it's software sales to that of the 3DS, which has sold half the amount of hardware so far as the PSP did lifetime.
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