Racy means something that that is very suggestive of sex or of sexuality. A small bikini would be considered racy, as would a very short miniskirt or low-cut dress on a woman. A large number of American romantic comedies are racy, because they talk and hint about sex and even give very brief glimpses of it happening, but do not go any farther than that.

See fdmaxey's answer. The word's meaning has nothing to do with race. 'Racy' is a bit of an old fashioned word and I think these days it describes things that aren't really that shocking or sexy but which your grandma would still find very shocking and very sexy. Others might disagree but that's my view. It is definitely the kind of word that grandmas and grandpas use, not a young person's word unless you're talking to your grandparents or in a very awkward or formal situation.