The Capital fell because of disaster if I recall correctly. The first settlement that fell was the Burnsilica due to a monstrous fire (the monks there went too far with their study of fire). Then the empire had the rebellion from the Reefic Republic. Before the capital fell, Rivola was destroyed by a hostile invasion from the elves.
The destruction of Mouthico was the final roll I did for the game (as it was the 2nd roll for the last age), so when it happened I simply left the map the way it was. I found my world to be a grand story of the rise and fall of a multi-island empire, and the fall of Mouthico was the perfect end to that story in my opinion.
And besides, losing is fun!