Wetware refers to the human brain and the decisions that humans make when they are using the computer. From the point of view of security, it is the "wetware" of the users that is the most important factor. It doesn't matter how many firewalls, honeypots, ID cards, RSA devices you have or how good your "least-privileged" access is set up, if trusted users simply hand over the keys to the system to others.
As Bruce Schneier writes, "Security is a process, not a product." Real security is hard, since it's not just about plugging in a security widget that will make all your problems go away. It's about processes and training your people to do the correct thing, all the time, no matter what.
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