“KY” looks it comes from English or alphabet language, but this is Japanese slang.
“KY (ケーワイ)” is shortened word of “Kuki Yomenai (空気よめない)”. It is used for person who is unable to read a situation. For instance, a guy keeps talking to his favorite girl like forever. The girl is totally fed up with listening to his talking, and shows bored feeling on her face. However, he doesn’t notice that she is bored, and just doesn’t stop talking. The guy is KY like in this case. KY also has another meaning of Kuki Yome, saying a person to read a situation. It is used to describe a person mainly though.
This slang was born on the Internet, and gradually started to be used in real by young people use KY, and old people don’t know/use this.
By the way, do you know what is “JK” shortened for? This is also new slang among young people. Hint: it is for girls who go to high school.