Penny turning blue at old American Indian village (6)
I believe the answer is:
pueblo
'american indian village' is the definition.
(I've seen this before)
'penny turning blue at old' is the wordplay.
'penny' becomes 'p' (**).
'turning' indicates an anagram.
'at' means one lot of letters go next to another.
'old' becomes 'o' (common abbreviation eg in OE for Old English).
'blue'+'o'='blueo'
'blueo' anagrammed gives 'ueblo'.
'p'+'ueblo'='PUEBLO'
(Other definitions for pueblo that I've seen before include "Latin American village" , "Town in Spanish-speaking countries" , "Navajo, eg" , "Old communal village in Mexico or Spanish America" , "Mexican settlement" .)