What caused this seat clamp / frame failure?
It looks like plain old metal fatigue. Most probably there was a hairline crack, then water got into it and rusted it out. 

Note that when you extend the seat height, you increase the lever arm of the seat post and put a considerable amount of stress on the frame precisely at that location. It doesn't help that the design of that seat clamp has no reinforcing material and is high-up, further increasing the leverage on it. Poor design.

The good news is that it's a steel frame. You could take it to an auto body welder and they could easily fix it for less than an hour of labor. Since they can't weld from both sides (the seat tube wouldn't go in), it'd still be weak and susceptible to damage. Or you could try rebrazing it yourself.