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The official reason is that Fate is all grown up and doesn't need Arf's direct protection anymore. Therefore, Arf decides to turn into a little kid to reduce the power draw and "protect" Fate's interests elsewhere (family).
The real reason is probably a desperate attempt to reduce the overflowing number of characters in the show. The official reason makes no sense with the limiter - if I were Fate, I'd dump all (or at least a large fraction of) the power the limiter isn't letting me use on a regular basis into Arf, making her super-Arf. I'd then move her in close, ready to bail me out if I need power and HQ isn't cooperating for any reason, or even if I get to use full power, 2 Weak on 1 is often better than 1 Strong on 1 (within limits).
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