A person can sometimes be described as a wet blanket if they make it harder for others to have fun, socialize, or participate in a party, etc. I believe that the intended comparison is to the use of a wet blanket to put out a fire, as a person called a wet blanket can smother a social situation, although some believe that this is because a blanket which can keep you warm if it is dry, becomes very uncomfortable when it is wet.

A wet blanket is uncomfortable to wrap up in - a person who is a "wet blanket" is someone who is not comfortable to be around. You would use this idiom to mean someone who puts a damper on the enjoyment of other people and makes a fun situation less fun.

I invited Bill to the party, but he was a real wet blanket and made us all miserable with his complaining.
A wet blanket is a party pooper, a fun killer: someone who destroys a festive or happy mood. Think of the way a watered-down blanket would smother a fire, and you'll get the idea behind the expression.

When a person is like a wet blanket, he/she is someone who takes the fun out of a situation or activity, as by pessimism, demands, dullness, etc. (P.S. Pessimism means a general belief that bad things will happen.)

A wet blanket is a person who isn't any fun. Just imagine if your blanket was wet, you really wouldn't enjoy that now would you.