It's trigonometry. Assuming the line of sight on a rifle is level, the line of the bore has to be tilted up slightly in order for the bullet to cross the line of sight. The bullet's path will be a curve, since it starts out pointing slightly up, and gravity will pull it down.
The closer the line of sight is to the line of the bore, the greater the distance that the bullet's flightpath will be nearly tracking the line of sight. As you increase the height of the sights, the barrel has to be angled up further in order to get the bullet to cross the line of sight at the same distance (say 50m). Because of the increased angle, the path of the bullet won't be nearly as close to the line of sight.
You can prove this by plugging numbers into a ballistic calculator. With everything else the same, and zeroing at 50m, calculate the difference from zero at 100m, 200m, and 400m with the height of the sights at 2". Run the same calculations with the height at 3", and note how much further from zero the bullet path is at 100m, 200m, and 400m.
-Troy