Blocking is the process of wetting a knitted piece, shaping it to its finished measurements, and letting it dry in that position. It sounds simple because it is. What it does to the fabric is often surprising until you've seen it.
Raw knitting taken straight off the needles, before blocking, tends to look uneven. The edges pull inward, the fabric can feel stiff or dense, and lace folds in on itself entirely. None of this is a problem with your knitting; it's what knitted fabric does before the fibre has been allowed to relax and settle.
Blocking changes this. The stitches even out, the fabric opens up, and the piece arrives at the dimensions the pattern was designed around. Lace actually looks like lace. Ribbing drapes rather than clinging. A garment that looked questionable off the needles often looks exactly right after a few hours of drying time.
Blocking is where the knitting becomes the garment.
How to wet block a knitted piece
Fill a basin with cool to lukewarm water and a small amount of wool wash. Submerge the piece and press it gently until it's fully saturated (don't wring or agitate it). Let it soak for fifteen to twenty minutes, then lift it out carefully and press out the excess water. Roll it in a clean towel to remove more moisture before laying it flat.
Lay the piece on a blocking mat or folded towels on a surface where it can stay undisturbed. Measure and pin it to the finished measurements in the pattern schematic, paying particular attention to the edges and any shaped sections. Leave it to dry completely before moving it, which can take anywhere from a few hours to overnight depending on the yarn weight and your environment.
Does everything need to be blocked?
Natural fibres like wool, alpaca, and cotton respond well to blocking and benefit from it. Synthetic fibres produce more limited results, as they don't have the same capacity to relax and reset.
Anything with a stitch pattern that benefits from being visible, lace and cables especially, will look significantly better blocked than unblocked. Plain stockinette in a solid colour is the most forgiving; even here, blocking evens tension in a way that reads as quality rather than handmade.
Swatches should be blocked before you measure gauge. Blocked and unblocked fabric can differ enough to throw off your stitch count, which means an unblocked swatch gives you inaccurate information at the moment you most need it.
Blocking individual pieces before seaming
You don't need to wait until a project is complete. If a garment is knitted in separate pieces, blocking each one before you seam them makes the seaming much easier, because the edges are even, the fabric is pliable, and you're working with pieces at their finished size rather than guessing.
Blocking isn't complicated and doesn't require much. A basin, some wool wash, a clean towel, and a flat surface are enough for most projects. The wait is the only real cost.