Kay is a character from the story "The Snow Queen" by Hans Christian Andersen. In the original story, a shard of glass from a demon's mirror becomes lodged in his eye as a child, causing him to see only the evil in people, and none of the good. This causes him to go willingly with the evil Snow Queen, whom as a result of the shard, he finds beautiful.
In the Fables universe, Kay is older, living in the Mundane World, but apart from Fabletown. Its unknown whatever happened to his childhood friend Gerda. He is first seen when Bigby Wolf approaches him to have a look at the newly arrived Red Riding Hood (as he can see any misdeeds in a person's history simply by looking at them) but finds Kay blind, as he gouges out his eyes every few years because seeing only people's darkest sides leaves him miserable.
When Beast becomes sheriff after Bigby resigns the post, he calls on Frau Totenkinder to grow a pair of eyes for Kay, so that he can use him to discover traitors. The other Fables are unaware that Kay has his vision back, and he lives amongst them as if he were still blind. Because of his ability, Kay is the only other person in Fabletown to know the full details of Bigby's past deeds and how Frau Totenkinder truly gets her powers. He has been drained of life energy and enslaved by Mister Dark. The "bad" he sees is defined so by Fabletown morals and not by Mundy justice, as he sees the "bad" in Bigby (though he was only doing what wolves do in fables and fiction, with no intention to cause evil deeds for the sake of evil) and in Frau Totenkinder (though what she does is perfectly legal from a twenty-first century Mundy American justice point of view). After seeing the "bad" in The Adversary, he gouged his eyes out again.