Team W extra point is blocked and Team N pick it up and before N39 scores N69 commits a personal foul penalty 50 yards away from the ball.]
The officials said by rule the score does not count and the penalty is declined, and Team W kicks off from normal yardline.
Why is this?? How does the score not count if it's declined, What would happen if it was accepted??

because it's the rule
 

The key to your post was the phrase the referee used.."BY RULE". He was correct in his assessment of the situation. The try is a different game in inself, and has rules which seem contrary to the rest of the game.

In the situation you described, the applicable rules are as follows:

Fouls During a Try After Team B Possession
8-3-4-a Distance penalties against either team are declined by rule. (Exception 8-3-3-d-2...which deals with live ball penalized as dead ball)

8-3-4-b Scores by fouling teams are cancelled.