What is the blue range indicating on this manifold pressure gauge?
It's a manifold pressure limit with altitude.  It relates to a limitation on the differential between ambient and total manifold pressure at different altitudes with turbocharged or supercharged engines; a limit on the amount of actual boost with altitude in other words, not the total pressure.

At 30000 ft, standard atmospheric pressure is only just under 9 inches.  20 inches on the gauge is 11 inches of boost above atmospheric.

At 20000 ft, atmospheric pressure is just under 14 inches, and you're limited to 35 inches, which is about 21 inches of boost. 

Between 16000 ft and sea level, with atmospheric pressure between roughly 16 and 30 inches, the limitation is the red line of 40, which is anywhere from 10 to 24 inches of boost above atmospheric.

The increasing limitation in maximum boost with altitude is usually related to the reduced cylinder cooling ability of the thinning air with altitude, and the potential for detonation.