What happened is that in the early days the PC was so horrible to use that only engineer-minded people would use it for gaming and for programming. It takes an engineer-minded person to program a simulator in the first place. What also happened is that the Cold War ended, and it shouldn't come as a big surprise that cold war scenarios and vehicles are still the favorite of our players even though it ended about a quarter century ago (and even more people apparently love WW2, which ended seven decades ago).
The cold war and the war against the Nazis easily fits a "good vs bad" binary morality (at least at first look, things get a bit muddied if you look closer), which makes a great backdrop for the comparatively simple narration that a simulation can actually convey.
What else happened - the PC matured, drew in more players who didn't have an engineers' mentality, and since there are vastly more non-engineers in the world, the games catering to that new audience grew exponentially faster while the simulation game community essentially stagnated. I suppose there are still about half a million to a million regular mil sim players in the world, maybe even two million. But that's a nearly irrelevant quantity these days, when casual games have literally hundreds of millions of regular players. That's the market size that draws investment dollars for new title development.
Finally, even survey sims that have a wild hodge podge of different airplanes (or, ahem, armored fighting vehicles) offer usually more realism today than a classic study sim of the mid 1990s, and they all look infinitely better. So, looking at Steel Beasts for example (I'm always picking my own title as an example to make sure that I know what I'm talking about) there's about two or three dozen vehicles now with 3D interiors or at least a relatively detailed, relatively high fidelity model of their fire control systems. That's literally two dozen classic simulation games in a single title. So, fewer titles cater to still the same bandwidth of people interested in diverse vehicles/weapon systems (and more; I don't think that without Steel Beasts there would ever have been a commercial simulation of, say, a Spanish or Austrian infantry fighting vehicle - certainly not as a standalone simulation game). I don't know if it's the same situation with flight sims (X-Plane comes to mind, but it doesn't seem to be hugely popular).
Also, I don't think that most military simulations have done a good job in the multiplayer field (and I'm including our own title there). This is partly due to the fact that in a military sim, if you want to play a realistic scenario, you need a lot of coordination and mission planning, and adherence of the players to communication drills and hierarchy. So, popping into some random mission at a random time and location doesn't work very well except for eternal furballs like "Warbirds"/"World of Warplanes". As a consequence, people need to agree in advance on a certain time and server to meet for some multiplayer action. Add to that a more or less clunky user interface and you weed out anyone with just a mild interest in such an event (which is a pity - maybe a blessing to some; either way, it doesn't help to grow the fan base).
