Bluewalling, also known as blue shielding or blueflagging, is the act of attacking someone who has their PvP flag up when yours is not up. It is considered by some as dishonorable due to the lack of fair chance to attack you before you approach. While not against any specific rules, it is up to the player to decide if they want to be "honorable" or have the upper hand.
On the official Blizzard boards, some servers usually have some list or another of bluewallers, or if not, at least complaints against them expressing strong anger and frustration.
This phenomenon is, for the most part, restricted to PvE and RP servers as players can travel through many more zones without raising their PvP flag, and flagged players are generally an atypical occurrence. It is also difficult to define or even enforce since there is very little practical difference between suddenly flagging PvP and then attacking and attacking from behind a bluewall, despite the former technically not being bluewalling.
The name "Bluewalling" comes from the blue color of the text above a non-flagged player's name, rather than the color of a flagged Alliance player's icon, a common misconception.
One notable exception where bluewalling is generally accepted is in capital cities where a member of the opposing faction's PvP flag will automatically get enabled, if they enter. Entering an opposing faction's capital city is informally thought of as trespassing and one can expect to get attacked just for being there, if you're from the opposing faction.
Another point of View
Some people, however, do not consider bluewalling an offence at all. On a PVE server, if you are for any reason flagged, that means you are subjecting yourself to PVP, period. That means unflagged people can attack, flagged people, it doesn't matter. That means you have to be really careful when deciding whether to flag or not. Sometimes Blueflagging is part of a strategy, when waiting for reinforcements to show up to start the battle, or whatever the case may be.
Also consider the Rogue class, which typically enters a difficult battle under stealth, in which case the initial PvP flag rarely makes a difference for the opponent. In face a Rogue can reasonably argue that bluewalling as a stealth strategy fits the overall character of the class.
There is another occurrence that hasn't been described here yet that has to do with the flagging process. When a high level character goes to a low level area flagged on a PVP server, some inexperienced players may unknowingly target and attack the flagged player, subjecting themselves to immediate ganking (most prevalent at Elwyn Forest/Westfall/Crossroads). While infuriating to most, that is just a part of the game, and should be just taken as a lesson for the future.
Note it is possible to accidentally attack a pvp player and become flagged through careless tab-targeting, especially in crowded neutral areas with many daily quests and popular grinding areas, such as Isle of Quel'Danas. If that happens the attacking player might consider using /sorry emote (even if killed) to let the other one know it was an accident.
Also note it is not possible to become flagged through use of AOE attacks around players or NPCs, the attack will simply have no effect and will not flag you. Bear this in mind if you are fleeing from NPC guards and you try and AOE fear/snare/etc to escape as it will do nothing. This behaviour also prevents griefing attacks where flagged players could stalk a player using AOE to farm mobs.