Why do my baby's croup symptoms seem to be worse at night?

Inflammation. Croup causes inflammation around the vocal cords, resulting in narrowing of the airway, a characteristic barking cough and respiratory distress. At night, your baby’s airway becomes even narrower, as the head scrunches down against the chest. Also, the baby is not actively clearing his secretions when sleeping, which can cause choking episodes. Dry air from a heater also worsens the cough.
A theory. Croup is caused by inflammation of the upper windpipe by infection. Inflammation is reduced by steroids. Your baby's naturally produced steroid levels drop at night and the inflammation increases leading to the worsening of the croup. Doctors sometimes treat croup with oral dosed of steroids. This is the theory that makes the most sense to me.
Secretions collect. During the day baby has deeper breathing and more active clearing of secretions. In sleep, the depth of breathing decreases but the secretions caused by the croup continue & puddle in the airway. Baby coughs deeply to clear these puddles & the vibrations of a rubbery airway make the noise that scares everybody. The noise scares baby & starts them crying. If you can soothe baby things often stabalize.
Swelling Worse. Croup describes a situation where swelling due to a viral respiratory illness or sometimes an allergy causes swelling in the voice box (larynx), the windpipe (trachea), and the upper bronchial tubes. When a baby is laying down, gravity makes the swelling worse, increasing the raspy breathing and cough. Let your pediatrician know if the baby has labored breathing, as some cases can be quite severe.