The whole thing went down in history as a smear
on then-Mayor Rudolph Giuliani
's record, of whom many people felt content to blame.
Why don't I address the "Why?" aspect. Nobody can say for certain, but there are two camps on the issue.
The police have an official stand on the matter. According to the record, they all pointed their guns at him and told him to put his hands up. He then allegedly began reaching into his pocket for something. His wallet? At that point the police may have thought he was going for a weapon, so they opened fire. Why keep shooting? The gunfire from the other officers and the richochet of a number of bullets past the officer's heads made the officers think that they were being fired upon, and emptied their clips.
According to Al Sharpton and Jesse Jackson and Louis Farrakan, the police officers were racist and did not have to shoot, much less use all their weapons. A witness said that they didn't provide enough warning. The family went on the national news and protested that he was an immigrant being discriminated against, and didn't deserve to be a suspect and there was no reason to kill him.
Giuliani was caught in the mix, and chose to back his police officer's statements. He did visit the family, and tried to qwell the whole uproar. Some nasty insults such as "Adolph Giuliani" made the Editorials. There was an official investigation, but many felt that the higher-ups in the government didn't want to pursue it, so there was a lot of public distrust.
A protest by minorities was organized, as many groups were complaining of police brutality. The really poor timing of Abner Louima's brutality case along with Diallo only increased the distrust of the police in NYC.
The whole racial/police/tension debacle has been going on for years, and it's at a plateau, starting with Bernhard Goetz, and going through the mayor David Dinkins administration, up until the Diallo case today. AFAIK the officers haven't been disciplined, as they responded to a situation.
The outcome? He's a martyr to some, "a fool who should have put his hands up" to others. Part of the door (with bullet holes) went on sale on ebay, asking price $41,000US (for 41 bullets). Bruce Springstein made a controversial song "American Skin (41 Shots)" that had a lot of the crowd at his concerts booing.
After September 11, 2001, the whole thing seems ancient history, as hundreds of police officers died in the line of duty, and are seen as heroes today. Giuliani may have been booed in the early morning of September 11, but when it was over, the country looked upon him as a hero, and Time's Man of the year.