We just got back from Italy and found that because of their microchip security system, there were several instances where our credit cards didn't work. At several train stations, we couldn't use the automated ticket machines and had to wait in line for a ticket agent. While gassing up the rental car, the pump card reader wouldn't accept out credit cards and we had to use cash.
We knew that several of our hotels were cash only and were prepared for that, but sometimes ran short on cash and didn't want to visit the ATM's at night to get more.
Check out the last paragraphs of Rick's Money 101.
http://www.ricksteves.com/plan/tips/moneytip.htm