Dendrites. The problem is dendrites. They’re tiny, nearly microscopic metallic growths on certain materials that occur when the material in question is heated or cooled (for example, during charge/discharge cycles, or by being too close to other hot components in phones/tablets/laptops/etc.). This causes, at least initially, the decrease in battery life and eventual expansion of the battery itself, and can in serious cases cause fires (if the expansion ruptures a cell).

Dendrites also caused the red ring of death on the Xbox 360, and their existence explains why you could fix it by sticking a 360 in the oven - it melted the dendrites that had grown on the solder connecting the BGA-mounted (ball grid array, literally a bunch of tiny balls of solder) CPU to the board. This is a process called “reflowing” and people who are serious about repairing electronics use specialized ovens for such a purpose. Unfortunately there’s no safe way to melt or reduce dendrites in batteries, but there are some promising new anode materials which may help prevent their formation in the first place.