Jericho was burnt out after spending 15 years wrestling non-stop, and he saw the direction his career was heading, so he decided to step away in order to focus on other pursuits such as Fozzy and acting.
By 2005 he had gone from the occasional main-eventer to the constant midcarder, and I believe he thought that if he didn't make a change quickly, he'd be painted with that brush for the rest of his career. Turns out stepping away was probably one of the smartest decisions Jericho ever made. It reinvigorated his status/passion and helped facilitate that amazing heel run from 2008 onwards.
He doesn't beat himself up with the full time grind. Gets to do his music and whatever else he's into at the moment, has a spot waiting for him in WWE whenever he wants, and gets great reactions because he's a legend.
As many have said, "burn out" was the official reason. He said so on his DVD. WWE doesn't give people time off unless they're injured. When Bret Hart took time off after Wrestlemania 12 it was the first time he'd not been working 52 weeks a year for 14 years.
Not sure how many people know this but Chris Irvine (i.e. Jericho) has 3 beautiful children. WWE doesn't leave much time for someone not only with family but so multi-talented.