A "squib" is a type of firework so a "damp squib" would be a firework that fails to explode properly because the powder has become damp.So it's a bit of a let down ..a non starter .Or a killjoy "Don't be such a damp squib ". Someone who is a misery whilst others enjoy themselves.
The origin of squib is a bit of a mystery, but the most reasonable theory traces the word to the actual sound made by a firework that just fizzles. Squib first appeared in the early 16th century. The idiom "damp squib" dates back to the mid-19th century.