There are a few key reasons why energy transfer between trophic levels is so limited, with only about 10% being passed on at each step:
1. Ingestion inefficiency - When one organism eats another, it cannot possibly absorb and utilize all the energy contained in the food. Some energy is lost in feces, urine, heat generated during respiration, and even indigestible materials like bones, shells, etc. Only a fraction of the total energy can actually be metabolized.
2. Digestion inefficiency - The digestive process itself requires energy, so some of the energy ingested gets used up in breakdown of food, absorption, and processing. The enzymes, acids, physical breakdown, and transportation steps don't come for free.
3. Metabolic inefficiency - Once absorbed, energy used for an organism's life processes like maintaining cell gradients, cellular respiration, movement, reproduction etc. also dissipate usable energy as heat. Energy must be expended to sustain the organism before any gets stored or passed on.
4. Predator inefficiency - Predators are never 100% successful in catching prey. A lot of energy is spent in chasing down food with no guarantee of payoff. The energy wasted in this activity can't be transferred up.
5. Prey escape - Even when predators catch prey, some prey may escape and go on to live another day. The predator expends energy without getting any in return. Some prey species have developed extensive escape mechanisms.
So at each transfer between trophic levels, a major fraction of energy is lost due to these biological inefficiencies, allowing only a small percentage to be available to the next level. This energy loss limits how many trophic levels can be sustained in a food chain.