I think Carmen Van Kerkhove invented the term, and you'll hear her talking about it in her lectures. The 'racial spy' issue has become something I've had to deal with several times in my life. It's basically a situation that arises when you're mixed and you meet others who don't know you have whatever ancestry you have, and decide to say racist things about part of your ethnicity. Because you appear mixed/ambigous, others assume that it's "safe" to get away with saying racist things. You hear things that you're not supposed to hear, and probably wouldn't hear if you were monoracial.
I hate it. I have dumped many "friends" once I discovered how racist they were towards my own ancestry. Stupid thing was, many didn't even know why I was reacting the way I was after I got angry at them for saying racist things.

I think it was March, 2007... we were starting year 11 and a boy in one of my classes approached me:
Me: Hi Tom
Tom: Oh hi Lily, how are you finding Society & Culture?
Me: Glad I chose it, I think it's interesting. Better than maths, I'm no good at maths.
Tom: Me neither.
Me: Mr Karanges is a nice guy, hey?
Tom: I'm just glad there are no Asians in this class.
Me: What?!!!

What the f*** did you just say?
Tom: I just said, it's a good thing there are no Asians in this class. There are Asians in all of the other classes I have...
Me: *furious* HEY! What about ME?!!
Tom: What do you mean?
Me: *storms off*

Anyone else here willing to talk about their "racial spy" experiences?