The sight glass is like a small window fitted in the liquid line just before the expansion valve. In normal operation an unbroken, clear column of liquid is seen behind the glass. If bubbles or foam are seen continuously, vapour is going to the evaporator instead of liquid: either the refrigerant charge is low, or the filter is blocked, or subcooling at the condenser outlet is insufficient.
The coloured ring in the centre of the glass is the moisture indicator. Green means "dry", yellow means "wet" (blue/pink on some brands). An indicator that has turned yellow says the filter drier must be replaced; if moisture stays in the system, acid forms and the compressor winding can burn out.
When charging, the service technician watches the sight glass: when the bubbles disappear and the liquid clears, the charge is close to the right point, but the final decision is made with superheat and subcooling measurements; charging by the sight glass alone is the most common way to overcharge a system. Brief bubbling each time the compressor starts is normal.