The blood meter is a game mechanic aimed at balancing gameplay between PvE and PvP.
For each player kill, one will obtain a blood level indicated on the HUD above the health counter. A higher blood level means Nether will be attracted to you more, prioritising you over other players when in combat and generally spawning more often near you. The higher the blood level can manipulate how often enemies spawn near you and what types of enemies (higher level means Golems for example).
The blood meter will go down slowly over time if no more player kills are acheived. The blood meter will also reset back to level 0 upon death.