In compressed air applications, usually the sight-glass is used on the outside of an opaque compressed air filter bowl or a lubricator bowl. The link takes you to an information page on this site about air filters.
A sight-glass will be plumbed vertically alongside the outside of the bowl or the tank or whatever vessel is being level-monitored. It will be installed with an inlet into the sight-glass through the wall at the bottom of the vessel, and another near the top.
The drawing shows the sight-glass installed on the left side of the filter bowl.
For clarity, my drawing shows the sight-glass standing-off the bowl. Different manufacturers have different style sight-glasses, with some being completely attached to the side of the bowl, and some are stand-off designs, where the sight glass doesn't touch the bowl except where the lines penetrate the bowl surface at the top and the bottom.
It is called a sight-glass since the original sight glass was made of ... glass - for best visibility, of course.
Today sight-glass materials used in compressed air applications are more likely to be a synthetic plastic or composite that offers the clarity of glass, but without the same potential for breakage.