I respectfully disagree with the above answer. It was economic problems at home and Nicholas insistence on ruling as an absolute monarch, not the loss of confidence by the Russian Generals, that forced Nicholas to abdicate.

Although Nicholas II was a pious and dedicated family man, he was ill equipped to rule under any circumstances, let alone a country the size of Russia with its myriad problems. One observer said of Nicholas that he:

would have been an ideal country gentleman, devoting his life to wife and children, his farms and his sport

He was traditional to the core, and believed he had a solemn duty to preserve the monarchy. This he believed, together with the Russian Orthodox Church, had secured Russia's legacy as the Third Rome.

After the 1905 revolution, Nicholas II had created a Duma (legislative assembly) for the Russian people, however Nicholas had no confidence in the Duma and instead relied on the antiquated Russian bureaucracy. He had absolute veto power over any decisions of the Duma, and exercised that power frequently. His failure to consult the Duma brought him under increasing criticism not only from members of the Duma but also from the middle class. When calls were issued for a new government more responsible to the people, Nicholas dismissed the Duma.

Next, Nicholas dismissed his War minister and travelled to the front himself to lead the war effort; he believed that his presence there would inspire the troops. Nicholas had no war experience, and this was an insane mistake. While he was at the front, his wife, Alexandra, fell under the influence of Grigori Rasputin, a self styled "holy man" who often interfered in family and political matters and caused deep resentment among the Russian people. Alexandra had a strong dislike for Parliamentary government and had long believed Nicholas should rule absolutely. While he was away and at Rasputin's urging, she attempted to do so herself; an act which further alienated the already troubled Russian people.

Economic deprivation finally took its toll, and on March 8, 1917, bread riots broke out in Petrograd (formerly St. Petersburg). The riots soon spread and Nicholas issued orders from the front that the army should restore order. Instead, soldiers broke ranks and joined the rioters. The Duma then assumed control and declared a provisional government. Nicholas knew his days were numbered, and abdicated on March 16, 1917.

Czar Nicholas II abdicated because he realized that the leaders of his army had lost faith in him.

By 1916, many Russians had become very frustrated with their government.  It was losing very badly in World War I.  It had been unable to provide much in the way of prosperity or political freedom for its people.  In other words, it really did not have anything going for it.  This discontent had been building for decades as Russia continued to lag behind the rest of Europe both in terms of economics and in terms of political rights.  World War I provided the stress that made things fall apart.

In early 1917, the army's leaders became convinced that they could only succeed in WWI if the people could be persuaded to have faith in the government.  They were convinced that this could only happen if Nicholas abdicated.  Once he understood that the army had lost faith in him, Nicholas agreed to abdicate.

So, the immediate reason for Nicholas's abdication was that he lost the confidence of his generals.  But the real reason behind the whole thing was the fact that the monarchy had kept Russia extremely backwards in economics, politics, and society.

Czar Nicholas II abdicated the imperial throne in 1917 for a couple of different reasons which began long before the year of his retirement.

Russia was a poor agrarian nation with nearly 80% of the population living as peasants while the top 1% of society controlled nearly a quarter of the countries total wealth. Although most peasants were free to buy their own land, the requirements and fee's were sooutragous most were unable to improve their lot in life.

Russia was also seen as technologically backwards nation that had not modernized at the same rate as other European nations. In 1904 Russia was humiliated when Japan defeated the country in a terribly one-sided war. This defeat by a non-European nation hurt Russia's standing with other countries.

Circumstances like these led to the 1905 Revolution, where both elements of the military and workers revolted and brought the country to a standstill. Nicholas tried to stop the strike from spreading by sending his soldiers to fire upon demonstrators, an episode called Bloody Sunday. This helped to fuel the fires of revolution rather than extinguish them.

Nicholas also failed to institute reforms that would have helped stave off a furthur spread of anti-Czarist anger when he released the October Manifesto to the Duma, but although he swore publically that he was committed to revolutionary reforms, he unfairly curtailed the power of this law-making body to preserve his own power.

But of all these events, the one that proved to be the biggest nail in the Czar's coffin was Russia's entry into World War I. Initially a popular move, Russia lost over 1 million soliders in the first year alone. Without workers, farming and industry failed to produce resulting in massive starvation. Nicholas left for the front to try and bolster moral, leaving his German-born wife to rule in his stead, a very unpopular move.

Riots began. Order broke down. Revolutionary parties began to take over and finally, with authority non-existant and thousands of soldiers joining the revolutionaries, Nicholas abdicated. Eventually he and his family were killed.

Nicholas ends up abdicating the throne for a variety of reasons that tie into the same one.  His inability to read the plight of both his nation and his people ended up causing him to abdicate the Russian throne.  Much of this comes from Russia's misguided attempts to enter the First World War.  The staggering loss of life, the rise in prices, and the massive increase in human suffering made developed an intense amount of resentment amongst the body politic.  Adding to this was the call for revolutionary change that seemed to resonate throughout Russia as the war was becoming progressively worse.  The Czar failed to acknowledge the economic challenges of his people.  Rampant inflation, scarcity of resources, and the intense change in the financial condition of the nation were all elements that demanded attention.  Czar Nicholas failed to give these issues the attention that they so richly deserved.  In believing that all could be controlled through military force, the Czar failed to realize that the human cost of the war helped to deplete much of the loyalty that the military held either to him or the office of the Czar.  In these conditions, the Czar had little choice but to abdicate the throne.