The ground sinks because the water is no longer there and gravity pulls down and fills the void? That's what I'm thinking. I have not heard of this before. What happens if it rains a lot? I doubt the ground can go back up. I'm guessing the storage will never be the same once the ground level changes.
You've essentially hit the nail on the head. Pore water pressure (water filling the voids between soil grains) helps hold the structure of the ground. If a significant amount of that water is removed, the voids have nothing to keep their shape and collapse. And yes, once it collapses, it can't be restored. This is how groundwater basins can be permanently destroyed due to overpumping.
Most groundwater basins in urban Socal are adjudicated, in other words, regulated as a result of lawsuits which led to judicial proceedings and hydrogeologic studies that govern who can pump how much so the basins won't be overpumped. Most of the Central Valley is unadjudicated so it's a free for all, but that will hopefully change with the passing of the Sustainable Groundwater Management Act that was designed to address this issue.
Camponotus vicinus, Crematogaster 1, Crematogaster 2, Formica francoeuri, *, *, Myrmecocystus testaceus, Novomessor cockerelli, Pheidole hyatti, Pogonomyrmex californicus, Pogonomyrmex rugosus, Solenopsis invicta