It’s a direct translation of the Spanish "sangre azul." 15th century Spain was occupied by the Moors. Inevitably, there was a long period of intermarriage creating many citizens of mixed blood. Many of the oldest and proudest families of Castile used to boast they were pure bred, having no link with the Moors who had for so long controlled the country. As a mark of this, they pointed to their veins, which seemed bluer in color than those of such foreigners. Those who had interbred with the Moors had darker skin which did not allow the blueness of the veins to show through like their lighter skin. So the phrase blue blood came to refer to the blood which flowed in the veins of the oldest and most aristocratic families.