The phrase "once in a blue moon" is used to indicate a rare event. Fittingly, the event of a blue moon is indeed rare...and no, the moon is not actually blue. A "blue" moon refers to the second full moon in a single month. Since a typical lunar cycle lasts about 29.5 days, it is rare for any single month to witness two full moons. The last blue moon took place recently on August 31, 2012.
There is a different, older definition of a blue moon which refers to the third full moon in a season with four full moons. This old definition has slowly atrophied with time as the new definition has popularized.