the healer was distracted by his cat and some people die. Maybe the mage doesn't watch her aggro and the mobs take out the DPS. Something happens, and the group wipes. The seed of doubt is planted: Can this group really pull this dungeon off? Am I grouped with a bunch of idiots? How big is my repair bill going to be tonight?
It's like watching a chain of dominoes. Sometimes, the group can laugh off a wipe or two. But if a simple mistake turns into a pattern of someone screwing up, or if luck goes against you and you have a few simple mistakes in a row, people start losing their morale. Suddenly, people aren't using their consumables (why bother when you're just going to die again?). The tanks and healers get frustrated and start getting sloppy. The DPS gets angry and starts getting cocky. Everyone thinks everyone else is a moron, and each pull is a little less likely to succeed than the last. Each wipe spirals you further down. Finally, people start having mysterious "emergencies" and have to leave the group (do a /who check to see them farming somewhere in 30 minutes). You might not realize it, but your group's morale is hugely important to your success.
This effect was much more pronounced in games with stiff death penalties. In many games today, dying isn't a huge deal. You incur some minor debt of some sort, have a quick jog back to where you were, and you're back in action. People tend to stand and die all the time, and they fight to the bitter end. However, back in the days of EverQuest, where dying came with a serious penalty (often erasing several hours of work) and dungeons weren't instanced, if a fight was going sour it was pretty common for people to turn tail and run for the zone line. Better to have one or two people die than everyone, right?
I can't tell you the number of times where I saw people flee before it was necessary and cost people needless experience loss. I also saw numerous cases where it didn't look like we could win, but everyone played their best, stuck it out, and we somehow beat the odds because we kept our courage and our morale up. While it's not as immediately obvious in today's current crop of games, the effects of morale are every bit as important to a group's success today as they were back then (it's just extended out a bit instead of being limited to a single fight).
The key with morale is trust. If you trust the people you're with and know that they're good players (or know how to work around their weaknesses), you're far more likely to feel good about whatever it is you're doing. If you don't trust the people you're with, it's really hard to work as a team and it's easy to lose your cool. This is one reason why pick up groups seem to be doomed to failure so often. It's not that everyone out there looking for a group actually sucks that bad. It's that you don't trust people you don't know, you don't know each other well enough to work as a well-oiled group, and the inevitable mistakes that occur in that situation erode morale at an alarming rate. Everyone wants to get out after the first ten minutes (or they've resigned themselves to a long evening and they won't be trying their hardest).
It's not just PUGs and small groups that suffer from this problem. The effect is even more noticeable in raids, thanks to the complexity of the situation. Even one person making a mistake on a tough boss fight can kill the morale of the whole raid if it happens a few times. Have you ever wondered why it often seems easier to kill bosses at the beginning of the night than at the end of the night? At the beginning of the evening spirits are high, people are fresh, and everyone is pumped. Towards the end you're all tired, you've probably wiped a few times, and you may have had more than a few mistakes. Morale is low.
That's why it's so important to do things in your groups to keep people's spirits high, if you want a successful run. Play professionally, but have fun. Make small talk between pulls, but get your game faces on when it comes time to fight. Don't be afraid to whip out your fun toys and trinkets that you've collected, but focus on winning when it counts. Understand the difference between yelling at someone and explaining where they went wrong in a way that helps them next time. Mostly, try to play at your best all the time and lead by example. Be the player that you want to group with, and people will respect you for it.
What do you do if you find yourself in a situation where morale has already started waning and you want to turn things around instead of abandoning ship? Figure out what's going wrong and offer a solution to the problem. Do it in a constructive way. If it's you, fix it yourself, telling the group what's going on. If it's someone else, suggest that the group try doing things "a little differently" and politely ask them to alter their strategy. Analyzing a problem and fixing it within the group can be a huge morale boost -- instead of just repairing the situation, you can actually boost people past where you started and get them excited. You're working as a team now, solving challenges together, and kicking ass! In the rare situations where people genuinely suck and aren't interested in getting better or playing as part of a team, that's easily fixed with a /gkick.
Never underestimate the importance of morale to your group's success. It can make or break your evening.