It means that the person sees or knows things that you think they should not know. It is as if they have an extra pair of eyes that see things which they should not be able to see. A brother and sister are playing in their room and their mother is in the kitchen which is three rooms away. One child hits the other and the mother yells out "Play nice, do not hit your brother." The brother says to the sister "Does she have eyes in the back of her head?"

It means that the person is very aware of what is happening around him/her. He/she has a great perception of what is going on and doesn't miss a thing. For example, you try to sneak up behind your friend and don't make a noise, but your friend turns around and sees you. You can exclaim that your friend has eyes on the back of their head.

Parents and teachers say "Watch out, I have eyes in the back of my head, " in order to warn children that they know exactly what they are doing and they had better behave themselves.