noun
Literally 'blue eyes'; used to describe eye color, often in reference to non-Japanese people.
彼女は青目がとてもきれいだ。
Her blue eyes are very beautiful.
noun
Westerner; foreigner (with blue eyes)
Metonymic use: 'blue eyes' as a stand-in for a Western person. Can be casual or slightly dated; not inherently derogatory but may be perceived as stereotyping.
あの青目の人は日本語が上手だね。
That Westerner speaks Japanese well, doesn't he?
Compound of 青 (あお, 'blue') and 目 (め, 'eye'). The 'Westerner' sense is a metonymic extension from the physical trait.