The equation of circle $C$ is $x^2 + (y − 8)^2 = 25$. The eye is located at $E = (0, −5)$. The maximal circular arc visible to the eye is $AB$, which is then being projected on to the one-dimensional "screen" as $A'B'$.
What are the co-ordinates of points $A$ and $B$?
I came this far: point $P$ on circle $C$ has the coordinates $x = 5 \cos\theta$, $y = 8 + 5 \sin \theta$. Now I should use this to find points $A$ and $B$, but I don't know how to proceed.


I will use your parametric representation. Observe that the center of this circle is at $C(0,8)$. The distance $|CE|=8+5=13$. The $\triangle CAE$ is a right angled triangle with $|CA|=5$ (radius) and $|CE|=13$, so $EA=12$ (Pythagoras) (same will be true for $EB$).
Now $$|EA|=12 \implies \sqrt{(0-5 \cos \theta)^2+(-5-8-5\sin \theta)^2}=12.$$ This gives us $$194+130 \sin \theta=144. \implies \sin \theta=\frac{-5}{13}.$$ Thus we also get $\cos \theta=\pm \frac{12}{13}$.
So $A,B=(5 \cos \theta, 8+5\sin \theta)=\left(\pm \frac{60}{13}, \frac{79}{13}\right)$