I heard a story about Sai Baba and an 'evil eye'. What happened in that incident with Laxmichand?

The incident you're referring to is a profound example of Sai Baba's omniscience, detailed in Chapter 28. One night during the Chavadi procession, Laxmichand observed that Baba had developed a cough. A thought arose in Laxmichand's mind that the cough might be the result of someone's "evil eye" affecting Baba. This was a completely private, mental thought. However, the next morning when Laxmichand was at the masjid, Baba spoke to Madhavrao, saying, "Yesterday I had much coughing; is this the effect of an evil eye?" By echoing Laxmichand's exact, unspoken thought, Baba revealed that He is aware of everything, even the silent thoughts of his devotees, which left Laxmichand in a state of wonder.