。
She wrapped the baby in a blanket.
Literal
She [topic-は] baby [object-を] blanket [with-で] wrapped.
包む (つつむ) means 'to wrap' or 'to envelop.' The で marks the blanket as the material or instrument used for wrapping. 毛布 (もうふ) means 'blanket' — literally 毛 (hair/fur/wool) + 布 (cloth).