Lack of maintenance by the previous owner, most likely.

While I appreciate the lively debates on loose versus caged, integrated versus discrete, and threaded versus threadless headset designs...lack of keeping the headset in adjustment is what ultimately destroys them all. To differing degrees, all headsets can work loose in time, but continuing to ride with a loose headset destroys bearings, causes brinnelling (indexing dents on the race) and can also allow the cups to move independently of the frame which results in the frame material deforming to the point that a press fit is no longer possible. Once the frame has "ovalized" (headset cups usually stretch the front and rear of the frame material into an oval shape), there's not much you can do.

If the damage isn't too severe, it may be possible to reface the headtube down far enough that the cup can gain purchase on new frame material. Also, some headsets are designed with extra deep flanges that can save a lost frame, but are really designed to keep it from getting that way in the first place. Lots of engagement = less chance of ovalization. Lack of proper facing can also cause cup movement and a loose fit.

The quick check for headset adjustment is to drop the bike. You'll typically hear a headset knock if it's loose (among other things, which makes it a versatile test). To isolate the headset adjustment, stand at the front of the bike, grab the handlebars and grip the front wheel with your knees. Rock it back and forth to feel how much play it has. It should have none if adjusted properly, but too tight is as bad if not worse. Now release the front wheel with your knees, lift the front tire and whip the bars from side to side. It should feel smooth with no resistance when adjusted properly.