"Code sepia" is a fictional code created for storytelling purposes. The term "sepia" is used here symbolically to evoke a sense of something old or hidden, as sepia tones are often associated with old photographs and hidden memories. It adds to the mystery and intensity of the operation in which Blubs and Durland are involved.

Eavesdrop (on somebody/something) means to listen secretly to what other people are saying:
We caught him eavesdropping outside the window.