It's now possible to notify all candidates, who were not chosen for the position they applied for, by using the new bulk reject feature.
Simply change the status for candidates that were not chosen to Rejected. Then select Action and Bulk reject. You will then be prompted if you wish to send an e-mail to all candidates who were not chosen for this position. You can do this as many times as you like - Candidates with status Rejected will only receive an e-mail once.
It's easy to customize the rejection letter from the Settings menu and edit templates.