It usually means that you were feeling confident but then the other person did something to make you feel less confident. It can also mean if you were feeling angry at someone, but then they did something nice to/for you, then it would be hard for you to justify still being mad at them. Eg. If you learned a really interesting fact you were excited to share with your friends, and they responded, "Yeah, I already know that. And did you also know that..." and show that they actually know more than you did, then you could say they took the wind out of your sail. Similar sayings are: you stole my thunder, you rained on my parade... Note: I wouldn't usually say this directly to the person's face, as that further rubs in the fact that they made you feel inferior. I would say it ABOUT that person to a third party: "They took the wind out of my sail..."

It means you became discouraged.

take the wind out of my sails= to make someone feel less confident or less determined to do something, usually by saying or doing something that they are not expecting. Example: I was going to tell him the relationship was over, but when he greeted me with a big bunch of flowers, it kind of took the wind out of my sails.