The study of the mechanisms affecting the preparation parameters of carbonated steel slag is of great significance for the development of carbon sequestration materials. In order to elucidate the mechanism of the influence of moisture on CO2 diffusion and particle cementation in steel slag, the effects of different water–solid ratios and water contents on the mechanical properties, carbonation products, and pore structure of steel slag after carbonation were investigated. The results show that increasing the water–solid ratio of steel slag can control the larger initial porosity and improve the carbon sequestration capacity of steel slag, but it will reduce the mechanical properties. The carbonation process relies on pores for CO2 diffusion and also requires a certain level of moisture for Ca2+ dissolution and diffusion. Increasing the water content enhances particle cementation and carbonation capacity in steel slag specimens; however, excessive water hinders CO2 diffusion. Reducing the water content can increase the carbonation depth but may compromise gelling and carbon sequestration ability. Therefore, achieving a balance is crucial in controlling the water content. The compressive strength of the steel slag with suitable moisture and initial porosity can reach 118.7 MPa, and 217.2 kg CO2 eq./t steel slag can be sequestered.