i think they've just gone out of fashion - much trendier and more comfortable to wear a shorter skull cap, bandana or baseball cap - i used to go through too many paper ones and the material ones needed startching or they would flop - bandana's are much easier to wash. and they absorb more sweat, the paper ones used to cause a rash on my forehead. then i did the smart thing and swaped the kitchen for a reception desk!!
Traditionally, they were worn so that all the various levels of chefs in a large kitchen brigade could easily find the head chef in a busy kitchen. It was as much for practical reasons as it was a status symbol.
I've worked in a few kitchens where the head chef still wears one (called a toque), but it's very much dying out.