I think it’s a slur against people with Down’s syndrome. It was originally used to refer to people from East Asia (mongoloid from either Mongols or Mongolia, not sure which), then later applied to people with Down’s syndrome due to similarities between some East Asian facial features and the facial features common among those living with the syndrome.

Looks like it was most commonly used in the 50s and 60s. Not sure if it wasn’t considered offensive then or if people just didn’t care as much.

Edit: also, props to you for using this as a chance to learn rather than getting defensive.