In this poem, Milton's speaker—generally understood to represent Milton himself—is expressing the dilemma with which he is wrestling now that he has gone blind. Milton did not actually title the sonnet himself, but it is normally referred to as "On His Blindness" to reflect the fact that this conflict is the focus of the poem. Milton has always been a great talent, and the "one talent" can be presumed to refer to his intellectual and literary gifts. However, because he now cannot see, he feels that he has been forced to "hide" that talent. It feels "useless" to him, because he cannot express it as he once did.
By saying that the talent is "death to hide," then, the speaker seems to be expressing his feeling that having to live with this talent but be unable to express it is figuratively akin to being dead. If he cannot express his devotion to God through his talent, then he feels he cannot fulfill his purpose. It feels like a living death to him to have to go through life in this dreary way, his talent "lodged" within him but no longer a functioning part of him.
However, Milton does recognize that this is a very pessimistic view of the world. In the latter half of the poem, he appeals to patience, and his patience tells him that he is still serving God in his own way, though he must be content to "stand and wait" in so doing.