gas condenses under pressure, N2O is under enough pressure in the bottle to keep it in liquid form. The pickup tube is in the liquid, and it stays under enough pressure to keep it liquid up untill the jet. then it sprays out, evaporates, and turns into a gas. Heating it causes a small amount of the liquid to evaporate and increase the pressure in the cylinder, by increasing the amount of gaseous N2O on top of the liquid N2O, this is the driving force behind the liquid when you push the button. The blanket is there to keep the bottle warm really, and usually under that is a thin plastic heater wrapped around the bottle. the blanket keeps the bottle warm so your pressure stays consistant through out the run, without having to heat the bottle. A big deal on full race cars that don't run alternators, and heat it with an outside power source in the pit lanes.