The vastly-experienced right-back will leave Town when his short-term contract expires early next week, with a deal unable to be thrashed out to see him remain until the conclusion of 2019-20.
Town's retained list also confirmed that loan keeper Kamil Grabara is to return to Liverpool, while seven players signed short-term extensions to boost the club's fight against Championship relegation and commit for the rest of the season.
While Cowley is grateful for that, he admits he would have liked to keep Simpson in an ideal world.
The defender himself has also expressed his disappointment at leaving the club on his Twitter account.
Cowley, speaking ahead of Sunday's trip to Nottingham Forest, said: "The first positive is that we were able to agree terms with the players who were out of contract.
"Credit to any footballer who is out of contract at this moment in time - it is a very difficult and uncertain time for everybody in the football industry and a unique time.
"All of the players had a decision to make. I understand why some will get criticised, but all I would urge is to know all of the details to make opinions and judgements.
"I am proud of the ones who have agreed to stay on and play and put their body on the line for the team.
"Likewise, I have only got good words to say about Kamil. He has done fantastic for us as a young goalkeeper. He will be a top goalkeeper and I know the experiences - good and bad - this year will be really beneficial for him.
"We had to make some financial decisions in this time and we all understand it is not easy for football clubs at this moment. It has not been easy and we have had to cut our cloth accordingly."
Specifically on the situation with Simpson, he said: "It was not possible and we have to accept and understand that. While it was disappointing for us and the club and also for Danny, we have to move forward. This is what you always have to do in life and football.
"Danny wanted to stay, there's no doubt about that and we wanted Danny to stay. But we couldn't make it happen and that was frustrating, no doubt about that. But this happens in football.
"In regards to Danny, he did great for us. He came in off the back of the West Brom and literally only trained ten days with us and played in his first game against Millwall and then we went on an eight-game unbeaten run and he had a huge effect, not just on the pitch, but also off it.
"I know he was desperate to finish the season with us and we were desperate for him to. Up until very close to match-day on Saturday, we thought he was going to, but unfortunately that was not possible for reasons that probably someone else is better to answer."
Commenting about his departure, Simpson claimed on Twitter that the club had verbally agreed a one month extension which was withdrawn one hour and a half before last Saturday's game with Wigan kicked off:
He tweeted: "Unfortunately, finishing the season the way I planned wasn't meant to be, so I feel it's only fair that I am honest and I explain to the fans that treated me so well. Last week, me and the club had verbally agreed a one-month extension which the club withdrew one hour and a half before kick off against Wigan.
"I am saddened by the outcome and the way the situation was handled.
"To leave the club in this manner is disappointing, but I believe the boys and the manager will fight and achieve the aim of staying in the Championship next season."
Meanwhile, Cowley has confirmed that strikers Steve Mounie and Fraizer Campbell will only feature at Nottingham Forest on Sunday if he is fully convinced about their fitness.
The pair missed last weekend's defeat to Wigan due to a quad problem and a slight Achilles issue respectively and the Town chief is mindful of jeopardising their involvement in a crammed schedule in July if they potentially feature at the City Ground when they are not quite right.
He said: "We are hopeful that they will be back and we will be able to use them. We know we have eight games coming very quickly and we cannot afford to make mistakes in terms of bringing them back too soon, as we know that could be fatal for their season."