Green’s Dictionary of Slang

spicy adj.

also spicey

1. [19C+] smart, spirited; thus the spicy n.

2. [mid–late 19C] smart-looking, neat, thus spiciness, attractive looks, neatness.

3. [mid-19C+] (also spiced) sexually provocative; thus spicy on, provocative towards [may have started out as a genuine euph. but invariably carries slightly ludicrous ‘dirty old man’ overtones].

In phrases

cut it spicy (v.) (also cut it fat)

[late 19C] to have a good, if vulgar time.