According to TMZ, Britney lost custody of her kids because she didn't do anything that the judges asked her to do.

She didn't meet up with a drug counselor, she didn't submit herself to drug testing, she didn't go to any parenting classes, she didn't sign the judge's order, and finally she drove her kids around without a valid license.

She pretty much gave her kids away. I'm thinking maybe she wanted that all along and did it the fucked up way instead of just handing them over to not "look bad". But in the end she looks worse because instead of taking responsibility for her actions she doesn't and says "Fuck You" to the judge, which isn't cool.

Source