Thee and thou?

As some of you may recall, I posted a question a few months ago about the similarities between the German and English languages. I got many enlightening answers, but one piddly little question still lingers…

I understand that our old words for you, ‘thee’ and ‘thou’, are analogous to the German ‘Sie’ and ‘du’.

First question: does anyone have any idea as to why we gave up the formal and informal you’s when every other major Indo-European language uses that system? I looked in Mario Pei’s ‘History of the English Language’, but found very little information there.

Second question: when we did use the two forms, how did one use them? My guess is that ‘thou’ was used for close friends and family, and ‘thee’ was used for everyone else, but I may be wrong on this one.