HSV-1 has evolved mechanisms to thwart the immune system's surveillance. A number of genes in the viruses genetic material code for proteins that can disrupt the process by which a cell alerts the immune system that it has a foreign virus within in it.
For technical readers, the reasons are described in the links above in detail.
For the non-biologist....
PART ONE As you note in the question, HSV-1 can remain dormant in an infected cells for a long time. In general, there is nothing for the immune system to respond to at this time. So the infection persists in a dormant state. Whats more, when it spreads, it can spread between cells, without entering the bloodstream.
PART TWO If the virus re-activates. In order for cells of the immune system to recognize and destroy a cell infected with a virus, the infected cell first chops up bits of the virus that are inside the cell and transfers these pieces (called antigens) to the outside of the cell so they may be presented to immune system cells. At the same time, the infected cell attracts and activates immune system cells using 'distress' molecules. However, HSV carries genes that make proteins that can thwart the presentation of antigens by a cell as well inhibiting the distress molecules that help activate an immune response.
PART THREE What about antibodies ? During the body's response to an HSV infection, antibodies can be produced and persist. In many infectious diseases, antibodies can be protective as they mop-up any circulating virus and may prevent re-infection. However, since HSV is already present inside cells, antibodies may have little effect in the reducing the amount of virus-infected cells in the body and may not prevent flare-ups.
Paradoxically, some of the symptoms of HSV flare-ups are due to the immune system's response! (looking for a good reference)
The good news is that drug options to treat HSV have improved.