One points out that's it's pale (3)
I believe the answer is:
wan
'it's pale' is the definition.
(wan can mean pale or grey)
'one points out' is the wordplay.
'one' becomes 'a' (a thing is one thing).
'points' becomes 'wn' ().
'out' indicates putting letters inside.
'a' put within 'wn' is 'WAN'.
'that's' is the link.
(Other definitions for wan that I've seen before include "Pallid" , "Pale and ill-looking" , "Pale from sickness" , "Looking pale and sickly" , "Pale in Botswana" .)