There's at least one live recording with Phil explaining in advance that this song is about a man who goes to a party, takes a girl home, and the next day she claims he raped her which lands him in jail for 20 years.
With that in mind, the lyrics are quite clear: The story begins with the release of that man who just spent 20 years of his life in jail despite being unguilty. He never learned why that woman made such a claim, yet he hopes for a real life after jail. The story jumps back 20 years to the party he was at; then the story fast-forwards 20 years after his release: he is an outlaw, everybody believes him to be a rapist, freedom is more brutal than jail, his whole life is ruined because of that woman.
Why does it matter that actual rape is far more common? A false accusation of rape is a sure-fire way to ruin any man's life and it does happen, however it doesn't get coverage as a topic terribly often. I personally always had a fear of this, which might even be a contributing factor for my own shyness issues towards women. So yes, I am glad somebody covers this topic for once.
Also, "Inside and Out" is quite a clever song name with its various connotations. There's the sexual allusion, then there's the in and out of jail subtext, and finally it might refer to the musical structure.
Being a non-native English speaker, I didn't pay attention to the lyrics at first, I just loved that song for its music, particularly its lovely chorus. Realizing what the song deals with lyricwise, I had a real huge "Oh" moment. Lyrics and music contrast a lot, another feature that makes this song great.