Green’s Dictionary of Slang

blue n.2

[blue adj.3 ]

1. a ‘smutty’ anecdote, a piece of pornography.

[UK]E.J. Milliken Childe Chappie’s Pilgrimage 47: All have their hobbies – Music-Halls were thine, / Childe Chappie; halls of ‘blue,’ and brazen glee.
[US]Randolph & Legman Ozark Folksongs and Folklore I 48: The authentic 1830s version is still alive in Scotland, as ‘Ye Ken Pretty Well What I Mean,’ and is sung [...] by Arthur Argo on his record A Wee Thread o’ Blue (1962), ‘blue’ in this context meaning off-color or bawdy.
[US]H. Ellison Introduction in Pulling a Train’ [ebook] Back in 1959 [this book] was lumped with ‘pornography.’ [...] Ten years later it was just silly pseudo- and updated Victorian blue.

2. an obscene or libidinous anecdote.

[UK]Barrère & Leland Dict. of Sl., Jargon and Cant.

3. obscene language.

[US]Codella and Bennett Alphaville (2011) 48: I’ve heard her curse out guys on the street in two languages worth of blue.