First, it's unclear how useful Okinawan karate was for self-defense prior to its transformation under Funakoshi, Itosu, et al., especially in comparison to modern methods.
Second, the major factors introducing impracticality are, to my mind, 1) incomplete transmission, 2) kata and classes as group activity, and 3) isolation from hojo undo and tegumi.
Simply put, some karate teachers were not taught the complete syllabus. They learned a form without applications and that useless husk became their curriculum. People taught application-less kata are prone to make up ludicrous explanations for movements and to waste time trying to reverse-engineer forms to match known techniques.
It's hard to get fit or learn to fight when so much time and priority is put on learning dances and thinking about what parts of the dances could mean.
Group Kata, Group Classes
Prior to Itosu and Funakoshi, Okinawan martial arts were transmitted in small groups or in one-on-one sessions. Teaching karate to groups of school children changed this. Instead of coaching a protege individually, whole hordes of pupils had to be put through the motions (quite literally) of stepping through a form.
This was a radical change. Very little application can be taught in such large groups. The proportion of vitally useful supervised partner practice plummeted.
Isolation from Hojo Undo and Tegumi
Okinawan karate was originally taught to people who were fluent in Okinawan tegumi (wrestling). They were also strong because of either independent or coached use of hojo undo (supplemental training), such as lifting, grip practice, and practicing feats of strength. The modernization of karate brought karate to people who were not familiar with wrestling and whose primary physical training was karate (instead of hojo undo).
Learning karate's jiujitsu-like holds and tricks or its method of striking is virtually useless without the strength to back up technique or without the ability to fall back to wrestling if a clinch happens or is necessary. Wrestling and practiced physicality are broadly necessary skills that lay the foundation for karate, and yet became less common as karate modernized.
In addition to practical concerns about this particular historical change in Okinawan karate, there are also a host of functional criticisms. The training methods, strategy, and pedagogy of karate can be rightly discussed independent of historical concerns, speaking purely about modern karate as-is. That is another question.
The primary suggestion I have for reading is to be extraordinary skeptical of any and all claims by Okinawan "masters". Expect self-aggrandizement at the national scale as well as the personal. Be critical of the idea that Okinawan karate is or has ever been useful in any way, and only then allow yourself to start considering the possibility that it might be, sometimes, in some limited ways.
With that in mind, Funakoshi's book Karate-Do: My Way of Life is solid, and a lot can be learned if one skeptically reads Mark Bishop's Okinawan Karate: Teachers, Styles, and Secret Techniques and Tetsuhiro Okama's History and Traditions of Okinawan Karate.