us ġhairat-e qamar kī ḳhajlat se tāb-e ruḳh kī
āʾīnah to sarāsar hotā hai pānī pānī
1) from shame at the brightness/radiance of face, of that envy-of-the-moon
2) the mirror is [habitually] entirely {perspiring with shame / 'water water'}
Notes:
ḳhajlat : 'Shame, &c.'. (Platts p.487)
pānī pānī honā : 'To perspire with shame; to be overwhelmed with shame'. (Platts p.221)
Then, there's this one in the third divan [{1267,1}]:
sab sharm-e jabīn-e yār se pānī hai
har chand kih gul-e shiguftah-peshānī hai
[everything perspires with shame before the forehead of the beloved
even if it is a rose {in full bloom / 'with a smiling forehead'}]
In the present verse there's nothing special, except that the wordplay of the juxtaposition of 'moon' and 'water' is fine; and the affinity between ġhairat and pānī pānī honā too is good. Since tāb also means 'heat', in this regard too there's an affinity, since perspiration occurs in the heat.
With regard to the shine/glitter of a mirror, if we consider it to be water ( pānī ), then in this regard the mirror can also be considered to be a fountain or a river. Ghalib (in an unpublished verse):
With regard to these affinities, to say that the mirror is pānī pānī is interesting.
Because of the connection between the moon and water, to call the beloved 'envy of the moon' and to mention the glitter of her face, and because of that glitter to speak of the mirror as pānī pānī -- all this is very fine. In short, the verse is commonplace, but the wordplays and affinities have made it enjoyable.
