Waterways: Can someone clarify what "inner" and "outer" means?

I have noticed that there is a relationship between the boundary of a waterway and the land. If you take for example the Island of Lake Bled.

For example: got to https://www.openstreetmap.org/way/254366753#map=16/46.3639/14.0953

You will see Lake Bled. Zoom in to https://www.openstreetmap.org/edit?relation=646#map=17/46.36361/14.08671 and tap on the line around the lake and you will the properties of the lake boundary appear. On the left I see “All Relations” of which there is one called “Lake Bled” with a value of OUTER.

If you now go to the island in the middle of the lake at https://www.openstreetmap.org/way/8149592#map=19/46.36231/14.09005 and tap on the line that circles the island (e.g. at https://www.openstreetmap.org/edit?relation=646#map=18/46.36239/14.08996)) I see that this line also has one relation called “Lake Bled” but with a value of INNER.

Can someone clarify what the OUTER and INNER mean here? I am guessing that OUTER is the “outer boundary” of an entity but INNER is a boundary “within” in the entity. Is this correct?

See https://wiki.openstreetmap.org/wiki/Relation:multipolygon

You are mostly right.
A relation:multipolygon is built using these 2 ways, 1 outer way and 1 inner way.
This is the “real” lake entity: https://www.openstreetmap.org/relation/646
See also some documentation: https://wiki.openstreetmap.org/wiki/Relation:multipolygon#One_outer_and_one_inner_ring

Note the name on the inner way serves no useful purpose, as there is no longer a main tag, and the tags on the outer way are probably obsolete, as well.

Thanks very much for the answers. Very useful stuff.