Fret-hand muting is particularly important when playing chords and power chord. The purpose is to use part of you finger tips and fingers to mute the strings you don’t want to include in the chord being played. For example the C majors chord is played from the 5th string to the first, your are not supposed to hit the 6th string. I use the tip of my 3rd finger that is holding down the 5th string 3rd fret to rub up against the sixth string thereby muting the string. I use this same technique with power chords, but in addition I use the fat part of my index finger to lightly lay across strings 1,2,3. with just enough pressure to mute the strings. The beauty is if you get a little wild with your pick it still sounds right. Fret-hand muting is used extensively.
Palm muting is more commonly used in distorted rock songs. The technique involves resting the heel of your pick-hand palm on the strings as you pick. Most people rest it directly over the bridge, but you can experiment with different positions for different sounds. Also try different levels of pressure to regulate the level of muting. This technique creates a percussive, muffled or chunky sound. Combine fast down strokes with palm muting in various patterns with moderate distortion for sounds similar to Metallica or other metal bands.
Both fret hand muting and palm muting are very individual and stylistic techniques. Incorporate practicing this technique every time you pick up your guitar and before long you'll master this necessary skill.