In the case of SPS losing tissue, the loss from rapid tissue necrosis (RTN) is usually abrupt and poorly controlled. In these cases the only recourse is often to cut unaffected areas away and hope that the frags survive.

As for what you're describing, sounds more like slow tissue necrosis (STN), the gradual decline of a coral that results in the tissue slowly receding from the coral, wither from the tip or the base. Usually STN is caused by some parameter that is unfavorable to the coral in question. Parameter changes like lighting intensity, flow, or chemical can be causes. In these examples, sometimes taking a cutting and moving it solves the problem, other times takes a bit more troubleshooting figuring out what's in (or not in, sometimes) the water.

If you've got T5s or MH, make sure your bulbs haven't gone awry - regular replacement keeps light output consistent and things happy.

Rectifying the parameter issue usually lets you correct the tissue loss. A tricky thing with SPS is that the water can be TOO clean. The corals still need a small amount of NO3/PO4 to flourish. In addition, your Mg/Ca/Co3 should be within acceptable limits too.

One thing thats been noted time and time again is when reefers who actively maintain a squeaky clean system complain of dull colours notice brighter more vibrant colours with more fish in the tank. For the longest time I had trouble getting deeper colours in my SPS until I added two more tangs - at which point I started to get better colour and more growth from my SPS. My tank was being underfed, and the result was loss of vigor in my SPS. They grew at a decent rate and had nice enough colours, but I knew it could be a lot better. adding the extra bioload actually helped in my tank.

Various other issues can affect the tank health - usually it's some combo of Ca/Mg too low or CO3 off balance. With montis, I noticed they were a good canary for Mg levels - too low, and their colours started to get dull.

My usual go to were Ca/Alk/Mg. If that didn't solve the problem, then it was a bit more of a head scratcher.
In short - there's a lot of things that could go wrong

 

^^ Very detailed response, thank you. What I'm most curious about is how often (and the events surrounding) sps coral regrowth. I have a blue milli that appeared to slowly die off completely. It was in a hard to reach area so I left. Several months later it started coming back. At first I wondered if it was possible for a different sps coral to host the existing skeletal remains because it came back a slightly different colour. I assume now it is the same coral and the colour difference could be related to environmental factors like those you have mentioned.

How common is regrowth?

 

It's fairly common I'd say - as long as it can stay alive. Not that I can give specific reasons, but I've had corals in similar places (I can see them but can't really reach them anymore) change as things like local water flow or light levels change slightly allowing them a little more favorable condition so they do "better".

Some corals also will take a really long time to establish them selves, encrusting for a long time, and then one day, bam! they start growing out. In a similar vein, I've has corals do this, then some slight factor changes and they stop.