Just did a quick search and found this...

It's a matter of history..
The "tipping" or removal of a hat is said to have originated from the same place as the military salute. Knights would lift the visor (face guard) on their helm, showing their face as a sign of respect and their empty hand as an indication they meant no harm. This tradition evolved into the modern military salute. Similarly, the removal of a helm (helmet) or other headgear indoors and as a sign of respect or reverence is said to have originated before the Dark Ages. This tradition was carried on throughout the centuries by men of arms (soldiers) and nobility, as well as their staff, servants and slaves. After the Dark Ages, manners and etiquette grew to become an essential part of everyday life and the conventions of hat etiquette became ingrained in civilized culture.

The Rules..
There are two degrees of politeness demonstrated by a gentleman wearing a hat:
1.Lifting or tipping it, which you generally do for strangers.
2.Taking it off, which you generally do for friends (or in some cases, as a sign of patriotism or reverence).
Both are done as a sign of respect toward the other and dignity toward oneself.