A "squib" is a small firecracker. (A "firecracker" is a kind of pyrotechnic or fireworks. It just explodes with a loud "Bang!" It just makes noise, no brightly colored sparks). Because a squib is small, it doesn't make a very loud noise. A "damp squib" is one that has gotten wet. Because it is wet, it doesn't explode properly. It might burn, but make a soft "Pffffft!" instead of a loud "Bang!" Figuratively, a "damp squib" is something that was supposed to be exciting but was actually disappointing. People expected it to be like a firecracker, but it wasn't even like a squib, it was like a damp squib. Here's an example of possible use. "The Panama Papers were described as explosive, but so far have turned out to be a damp squib."

It is situation when something, someone is in reality much less attractive then you expected. For instance you are waiting for a superb party when you will have a lot of fun, but in reality it is so so, at the best.