Macbeth makes this statement after he returns to his chambers in an emotionally overwrought state, having just murdered Duncan. The line itself means that sleep is a soothing time that heals or sews up all the worries and stresses ("cares") of the day. It makes us new again, just as knitting up an unravelled sleeve makes a sweater new again.
Macbeth tells Lady Macbeth that from now on the "balm" of sleep is over for him. He will no longer be able to rest in peaceful slumber after what he has done. The evil of his treacherous act will haunt him, keeping him up at night. When he says he has "murdered" sleep, he means he has murdered his peace of mind along with murdering his good, "meek" king.
Although Lady Macbeth tells Macbeth to get a grip and wash the blood off his hands, she is the one who, ironically, will be most affected by the guilt that haunts her in her sleep, unable to wash the metaphoric blood off her own hands.