I think that TomVrille is as close as anyone.
It wasn't always the case of a total engine failure. Often rough running or a plain loss of power would mean you couldn't hold formation and certainly in the latter stages of the war, it was pushed home by many flight commanders that it was better to turn back than become a 'sitting duck'.
As far as the signals - certainly in the case of scouts I think it was almost as simple as waggling the wings and a thumbs down. In the case of two-seaters, sometime very flares might be fired - but I bet that wasn't too popular if it was a fuel leak!
But ultimately, particularly as most allied flights were across or over the lines and returning against the wind, I'm pretty sure a sudden silence would be followed by a very rapid glide for home!