I've heard a lot of stories, ranging from showing up for work drunk to being too assertive about control over her character. I don't know how much truth there is to any of them, but it's generally agreed that Cordelia 'going on vacation' for several crucial episodes towards the end of S3 was a cover for straightening out whatever the problems were. Then CC came back pregnant, which didn't endear her to the writers, because they'd just done the Darla pregnancy story and didn't want to do another. Then David Greenwalt, who was Cordelia's biggest supporter among the writers, left the show.

And then we got S4. CC apparently hated her entire storyline, and refused to go with the ending they had in mind (Connor and/or Angel killing Possessed!Cordy in an all-out battle) by saying she wasn't physically up to a big fight scene. And then we have the writers saying that oh, well, they couldn't bring Cordy out of the coma because there was no way to make the character sympathetic again after all that icky Concord stuff, which they just sort of got carried away with and wrote in by mistake, heh heh, so they had to write her out.

Since both sides have (laudably) refused to air their dirty laundry in public, I don't think we'll ever know the whole story. But there's enough smoke to make me think that there was some fire somewhere.