For example if I'm selling a blankets:
How would that affect my SEO? Would Google penalize me for this?
Bad idea since Google addressed this issue awhile back, far too many webmasters were buying rich keyword domains and also making hundreds of rich keyword sub domains. Google rewards for SEF so no point in making sub domains or buying a domain with a keyword in.
Google wants more webmasters building a brand rather than stuffing keywords into the domain field, its now pointless to say the least.
If you create the sub domain with keywords Google will either not reward for the keywords or it may go against your site as a negative, no one truly knows exactly how Google puts the hammer down but what we do know is that Google loves Search Engine Friendly URLS so include your keywords in the URL path as Google loves...
A few resources on Google's EMD below: