Meaning

noun a small hole (usually round and finished around the edges) in cloth or leather for the passage of a cord or hook or bar

noun fastener consisting of a metal ring for lining a small hole to permit the attachment of cords or lines

originFrom Middle English oylet, from Old French oillet, equivalent to Old French oil (“eye”) + -et (diminutive suffix). Spelling and pronunciation were later on influenced by eye (which is distantly related to oil via Proto-Indo-European) as though suffixed with -let (a double diminutive also from -et).

Etymology from Wiktionary, CC BY-SA 3.0