The answer is 'simple' it comes in four parts;

1) Transistors dissipate the most power when they are switching (this is because they transit their linear region). So the more they switch the more power they dissipate, thus the power dissipation of any transistor circuit is proportional to its switching frequency.

2) Silicon stops working reliably above 150 degrees C, this is due to thermal effects in the silicon overwhelming its electrical characteristics. One way to think about it is that at 150 degrees C the silicon lattice structure is vibrating so hard because of heat the electrons can't move anymore.

3) Lithography and manufacturing techniques have increased the number of transistors per square millimeter of silicon exponentially over the years so the number of transistors has been observed to double every 18 months or so.

4) The ability to channel heat from silicon to the outside air is limited by the thermal conductivity of silicon and the ceramics used to encase it.

So those four parameters create a 'box' which is sometimes called the 'design space.' If you build a chip that is inside the box it works, if one of the parameters goes outside the box it fails.

In the great Mhz race of 1998 clock rates were pushed up which caused heat dissipation to go up, and transistor counts were going up too, so you got an n^2 effect in terms of heat dissipation. The race was powered by consumers who used the single number to compare machines (spec wars). It was unsustainable.

The end of that war occurred when AMD introduced multi-core (two cpus for the price of one!) architectures. And Intel had the largest design failure in its history when it scrapped the entire Pentium 4 microarchitecture after realizing it would never get to, much less past 4Ghz as they had promised.

AMD proved that for user visible throughput, multiple cores could give you a better net gain than a faster CPU. This side stepped the n-squared problem by having twice the number of transistors but running at the same clock rate, so the heat only went up linearly rather than exponentially.

It was a pretty humbling moment for Intel.

That begat the 'core wars' where Intel and AMD have worked to give us more and more 'cores'. The heat problem was still there, but it was managed with transistor design since the frequencies were staying flat.

Recently, some new transistor designs and system micro-architectures, have combined with the inevitable flattening of performance gains from multiple cores (see Amdahl's law), to give us 'turbo-boost' type solutions, where only one core runs at higher speed (side stepping Amdahl) at the expense of down clocking or even turning off other cores (sidestepping the frequency component of power increases).

Another technology on the horizon (which used to be only for the military guys) is SoD or Silicon-on-Diamond. Diamond is a wonderful conductor of heat and so if you make your processor on a diamond subtrate you can pull lots of heat out into an attached cooling system. Get ready for 7" x 7" heat management assemblies though that attach to these things. Or alternatively a new ATX type form factor that includes something that looks like a power supply but is a chiller that attaches via tubes to the processor socket.