The grandma wraps her grandson in a blanket
Agreed. We use the possessive in this sense in English. It should be accepted. I hope you reported it.
Does envolvar specifically mean "to envelop", as in to wrap/roll up, or can it also mean to cover in general?
Yes, it has both meaninds.
Would "neto no cobertor" also be correct since "no" is a contraction?
no = in/on/at the.
Is "num" a real contraction? Does it mean "em um"?
Yes, it is official. Both num and numa are correct.
Why is 'A vó' not accepted?