1660s, of persons, "poorly dressed," with -y (2) + shab "a low fellow" (1630s), literally "scab" (now only dialectal in the literal sense, in reference to a disease of sheep), from Old English sceabb (the native form of the Scandinavian word that yielded Modern English scab; also see sh-). Similar formation in Middle Dutch schabbich, German schäbig "shabby."
Of clothes, furniture, etc., "of mean appearance, no longer new or fresh" from 1680s; meaning "inferior in quality" is from 1805. Figurative sense "contemptibly mean" is from 1670s. Related: Shabbily; shabbiness. Shabby-genteel "run-down but trying to keep up appearances, retaining in present shabbiness traces of former gentility," first recorded 1754. Related: Shabaroon "disreputable person," c. 1700.