I don't know why it was removed (after my time) but I do know it had a lot of problems.
1) Most users were unaware of the feature, and it's hard to find a way for them to discover it.
2) The index costs a lot of disk space, which makes #1 worse. There's a whole bunch of tradeoffs around how much storage to use vs how much history to keep. Pages that self-reload can cause the index to bloat endlessly (a real bug we had).
3) Having an index of pages locally is not sufficient to make a useful search engine. There's a lot of ranking involved in making google search good. Similarly we tried to show "snippets" of page text that showed why we showed the results we did and that itself requires a lot of effort to be useful.
#2 and #3 are just bugs that can be fixed with more effort, but it's hard to motivate that effort in the presence of #1.
(FWIW, the sibling comment about how it was removed to favor google.com searches isn't plausible to me, that's not how the Chrome team works.)