Why do some people cover their face with a blanket when they sleep?

People who fear sleeping in dark rooms or fear sleeping alone might cover their faces in order to feel more comfortable. By doing so, a person can feel safe and protected and is able to sleep. (See What are the body language signs of fear?)

If a child believes in ghosts then they might develop the habit of covering their face when they sleeps so that the ghosts or monsters don't see them. This belief usually persists as a person grows up and so the person ends up covering their face even as an adult. (See Are Ghosts Real?)

People who hate to lose control have a hard time keeping their eyes closed, as they can't control their environment anymore. Those people might cover their faces to experience an additional amount of control in the new environment they created under the blanket.

People who sleep in rooms that are not that dark and the ones who fear sleeping in dark rooms might cover their faces to block the light in order to be able to sleep well.

People who only cover their heads in winter or in cold days might just be doing it to keep their heads warm.

People who cover their heads with blankets in noisy areas might be only doing it to get rid of the noise. If, however, this sleeping position becomes a habit then a person will only feel comfortable sleeping that way even if there is no noise. 

Fear of the unknown, fear of the future and general feelings of insecurity can cause such a habit. A person who hides their face might unconsciously believe that they are escaping from their fears.

A person who covers their head with a blanket might be too afraid to face their life problems, and they might believe that by covering their face they would be escaping from them.

Some people who used to have certain fears and managed to get over them might still keep the habit of sleeping that way because it makes them feel more comfortable.