What it means:

This phrase has more than one meaning: we overlook flaws in those we love (that's good), but love can blind us to serious issues (that's bad).

How Shakespeare used it:

In The Merchant of Venice, Jessica is shy about her beloved Lorenzo seeing her disguised as a boy, but recognizes that it won't affect his love for her, saying, "But love is blind and lovers cannot see / The pretty follies that themselves commit ..." (Act 2, Scene 6)

(The phrase also appears in Henry V and The Two Gentlemen of Verona.)

Modern example:

"Jonathan Rhys Meyers thinks love is blind. The actor ... thinks it is easy to fall for someone without knowing much about them, just like his alter-ego does...." — ShowbizSpy.com, Feb. 7, 2010