A damp closet may highlight a more underlying problem and may be something you’ll need to have looked into by a professional. In most cases it signals poor ventilation. Try using a dehumidifier to dry out the closet. If you don’t already have one installed, employ the use of a lightbult to add a little heat to the situation. (Keep well away from clothes, however.) Chalk, silica gel, and activated alumina can all be placed in a container and put on a closet shelf to absorb the moisture. None of these will harm clothes. To remove musty smells, hang a dryer sheet in the back of your closet or lay one on a shelf.
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