Dear …
RE: Position of __(type of position)__
Thank you for coming in for a __(second/third/etc.)__ interview for the position of __(name of position)__ with __(name of organization)__. You have excellent qualifications and have been a strong candidate throughout this entire interviewing process. Choosing an individual from amongst a short list of such skilled candidates ended up becoming quite a challenge for us.
While we were very impressed with your knowledge and experience, __(name)__, we have now made the decision to fill the position with someone who has slightly more advanced skills in the area of __(type of skill set)__. We do appreciate the time you gave to us for this interviewing process and will keep you in mind for any future opportunities that may become available. Again, thank your interest in employment with __(name of organization)__. It was a pleasure to meet you and we wish you the best of luck in your future endeavors.
Yours truly,