It's an unspoken rule that an embassy should be located in the capital of the host nation.

By moving the capital the US is recognizing Jerusalem as the capital, which is contentious as Israel annexed East Jerusalem and united it in one constituency "singular and indivisible".

This means that using the term Jerusalem denies the existence of East and West Jerusalem, which is also contentious because East Jerusalem is meant to be the capital of the state-to-be of Palestine.

As to why the Trump administration would take this step, which no US administration has ever dared to have taken is mostly domestic: A sizable share of Trump's support comes from relatively right-wing evangelicals, who see the Israeli-Palestinian question as a religious struggle, and demand unwavering support for Israel from the administration.

This act ensures their continued support for the Trump administration.

Of course this act comes at a cost too, largely diplomatic with other powers, including allies, in the region and beyond. At some point the Trump administration must have decided that this backlash was worth the domestic political gain.