The Ayleids came from Summerset Isle and settled in Cyrodiil. They maintained fealty to the High King of Alinor for a long time, but the distance between the two locales eventually had the Ayleids becoming separated from their Aldmer brethren in Summerset. Modern day Cyrodiil was divided into Ayleidic city-states that warred among themselves and kept human slaves. Alessia rallied those slaves, and with the help of the Nords of Skyrim, Morihaus-Breath-of-Kyne and Pelinal Whitestrake, overthrew the Ayleid rule of that area.
The Ayleids did not die out. While most Ayleids were either slaughtered during the pogroms of that time, or disappeared into the forests of Cyrodiil and Valenwood (thus the term "Wild Elves"), some clung to their lands and city-states briefly thereafter.
Whatever their individual fate, the Ayleids as a whole have now either decided to live in obscurity as primitive jungle (ooops, sorry *ahem* FOREST) people or been absorbed by the other elven populations to the point that they have been "bred out".
Isn't Chancellor Ocato an Ayleid? That would be an ironic take on history much resembling the death of Reman III and High Potentate Saverian Chorak
The theory that High Chancellor Ocato is actually an Ayleid instead of an Altmer has been tossed around for quite some time. Arguments for both sides have been presented, weighed and measured. Despite the fact that none of the participants in the discussion have the ability to say whether Ocato definitively is or is not an Ayleid due to our non-dev statuses, the general consensus is that Ocato is an Altmer, not an Ayleid scheming to reclaim the White-Gold Tower for his cast down race.
May Jhunal Bless and Keep you, for I remain...
___The Word Merchant of Julianos