Gray is a slur used to describe Whites in a derogatory way. A white that tries to act black (white & black mix = gray). See: Wigger. Could also just as easily be a half black/half white child.
The word Gray is a racial slur that has been used historically to degrade and dehumanize whites. The word is still used by some people for this purpose, and it is seen as offensive and hurtful to whites. If you are unsure about whether or not it is appropriate to use the word Gray, it is best to err on the side of caution and avoid using it in any situation.