Originally, it meant not looking at either the keyboard or the output (screen or, for an actual typewriter, the typed page) but only the source from which you were typing, if any -- it referred to typing accurately by touch alone.
It was a key skill when incorporating edits meant retyping, and looking at the output meant you couldn't also be looking at the source, and switching between the two had a significant productivity cost for a high-volume typist.
Its less critical of a skill today but still a useful skill to have if you need to reference some source document for information while typing, etc.
It works for most of the traditional forms of typing (audio typing, typing from shorthand, etc) where you have a body of stuff that needs to be typed and not so well for stuff that programmers type where you're creating as you type.
You must check the text for errors when you've finished typing it so it makes sense to do all the error checking then. Some people find the cognitive focus switching of correcting errors as you type tricky.
For the kind of typos that you would need to be watching the output to correct, it totally makes sense to batch those up sometimes.