As you may tell from the title Blue Dye is just really blue dye in Runescape.. It can change the color of any regular cape to blue (as the red and yellow dye also can). If you mix it together with red dye you make purple dye. If you mix it with yellow dye you make green dye and so on.
Blue dye is also in fact a good way to make some money, doesn't give a lot, but it doesn't take to long to make.
Step 1: Where to obtain your ingredrients.
To make Blue Dye you need 5 coins (5gp) and 2 woad leaves which is bought buy Wyson the Gardener located on the map below. talk to him and click continue. Then click "Yes please, I need woad leaves." From then on just keep clicking continue. You don't even have to move your curser.
(When you get to the part when Wyson asks you how much you will pay him, pay him 20 coins for he give you 2 woad leaves for being generous. 5 coins and 10 coins won't work and 15 coins only gets you one woad leaf)
Buy as much as you'd like depening on how much money you have. 10 woad leaves are 100 coins. 20 woad leaves cost 200 coins and so on.
Wyson the Gardener is located in the Falador Park, east of the small pond near the little building.