What I think it actually is, at least, I hypothesize, is caused by the same thing that causes lost memories, but on a much larger scale where so much of yourself is lost that you start to fragment into parts that stop making associations with other parts. That's why it's permanent once you reach the different people stage, because you have like partitioned your brain into these different states that struggle to interconnect well with each other, that can't recall the other parts of you, and start developing divergent personalities to work around the parts that they can't connect to. Also, your experiences stop affecting the whole cluster and start affecting the specific mode that is active more so than the ones that aren't, so that contributes to the drifting apart.

Also I think (despite having no knowledge of psychology and only myself to go off of, so don't agree with me) memories are lost because you dissociate while remembering them and that corrupts them, because whenever you remember something you kind of visualize / experience it again, but if you're out of it and don't re-live the experience when you access it, then it gets stored away as like a degraded version of itself with less clear details, and if you keep doing it, then all that's left are like the emotional reactions that seem to come from nowhere at all. I think that's also why in some people they distort into things totally different than what actually happened (I don't think you can create "false traumatic memories", though).