IDK why they keep abandoning this practice when the leave the walls
Glen
In the comics they explain it a little clearer. (no spoilers)
You need to do two things to have the zombies ignore you.
Look like a zombie, and
act like a zombie.
You don't actually even need the blood and guts. Just the skin is enough, or to be concealled enough to not appear obviously alive. I don't know if a costume will do because it hasn't been tried... but a skinsuit works even if its been cleaned out because the zombies cannot smell very well if at all. If they have been dead for any length of time thier entire nose and olfactory systems have decayed and rotted.
The main reason it is dangerous to continually be covered in zombie blood and/or guts, etc is because as a living person you still run the risk of contracting diseases and ailments associated with being in contact with dead rotting corpses. Gangrene, Lepracy, Plague. Serious stuff. Some of the stuff you can contract would wipe out a small camp in days. Even if the fit people with strong healthy immune systems like Michonne can get away with it every now and again, she could bring something back that would take down judith and carol whose bodies couldn't fight it.
Also, when they first covered themselves in the gunk it was fairly early into the apocalypse. They hadn't been starving and exerted and exhausted. They were resting everyday, etc. They could fight off infection. Plus they had the luxury of it raining.... it just seemed to all work out.
You notice that when Michonne first shows up at the prison she herself is smarter than to cover herself in zombie gunk. Instead she uses the two zombies on leases to mask her prescence and wears a cloak which simply conceals her appearance. As long as she moves in a certain manner that doesn't trigger the zombies predatory instincts she is ok.
The running and screaming is what lets most things know you are prey. Thats why chew toys made for pets squeak when bitten or why they say dont run when you encounter a bear.