The stanza from which "embalmed darkness" is taken reads as follows:
I cannot see what flowers are at my feet,
Nor what soft incense hangs upon the boughs,
But, in embalmed darkness, guess each sweet
Wherewith the seasonable month endows
The grass, the thicket, and the fruit-tree wild;
White hawthorn, and the pastoral eglantine;
Fast fading violets cover'd up in leaves;
And mid-May's eldest child,
The coming musk-rose, full of dewy wine,
The murmurous haunt of flies on summer eves.
(The word "embalmed" should obviously be pronounced with three syllables.)
The speaker has managed to join the nightingale in his imagination. He is, like the bird, hidden among the bushes. It is midnight. He cannot see much of anything, because of the late hour and being surrounded by leaves. He is writing from the bird's perspective. The phrase "embalmed darkness" simply suggests that he is immersed in numerous sweet smells. The term "balm" means an oily, sweet-smelling substance. Embalming typically consisted of covering a corpse with sweet-smelling balm in order to cover up the decaying odor of a dead body. Flowers are brought to funerals for the same reason.
The fact that Keats was imagining being surrounded by sweet smells and that he could not see anything in the darkness, undoubtedly made him think that this is what it would be like to be dead. His poem is full of thoughts of death and of the wish for oblivion.
Keats was preoccupied with thoughts of death because he felt he was doomed to die of consumption, or what is now called tuberculosis--as in fact he did, in Italy, when he was only twenty-six. According to the Introduction in the eNotes Study Guide:
Death marked John Keats. His father died when Keats was 9, his mother died when he was 15, his younger brother died, and then Keats himself died of tuberculosis at 26. And yet John Keats, in those short troubled years of his life, wrote poetry that continues to dazzle readers and scholars of today. During his last year, which Keats referred to as his posthumous (after death) life, he wrote poems focused on the topic of death and decay.
So when Keats writes "...embalmed darkness" he is obviously thinking of being dead and being surrounded by sweet-smelling odors of embalming fluids and flowers. In the poem he goes on to compare himself to the nightingale. The bird is immortal, but he will soon be dead and unable to hear her beautiful song. He often thought about the fact that he would be dead and everything else would still go on as before. In other words, his death was not really of much importance in the grand scheme of things. He found it comforting to think that the nightingale would go on singing all over the world, including in the Holy Land, where the song was
Perhaps the self-same song that found a path
Through the sad heart of Ruth, when, sick for home,
She stood in tears amid the alien corn;
The scents that Keats disguishes are the grass, the surrounding thicket where he is in hiding, the wild fruit trees, white hawthorn, eglantine, violets, and the musk-rose. Keats' poetry is distinguished by its wonderful descriptions and sensuality rather than any profundity of thought. The combination of all these smells must have been intoxicating, even though they are only imagined--by the poet and the reader.