When you are looking at your dog circling and scratching its resting spot, you are actually looking at the remainder of nesting - an evolutionary memory of digging a pit to lie in or scratching leaves - which has now turned into a behavior not as physically necessary as it is instinctual.

So dogs really like to make a resting spot their own. A blanket can give them the sense of making their bed exactly how they want it. Additionally, curling up under a blanket can make them feel more comfortable and safe.