“Blue”, said I, “is out” (3)
I believe the answer is:
sad
'blue' is the definition.
('sad' can be similar in meaning to 'blue')
'said i is out' is the wordplay.
'is out' indicates named letters should be taken away.
'said' with 'i' taken away is 'SAD'.
(Other definitions for sad that I've seen before include "Tragic" , "Despondent" , "Melancholy, depressed" , "Dismal" , "A form of depression in winter, initially" .)