In a story, the outer world is everything translated to the page that happens in a character's physical world. The people he meets, the words that she says, the actions he takes--these are all manifested outside the character.
But there is an entire inner world that should also be addressed, and this is what's referred to as the subtext.
A character can't express everything in the outer world, after all; there are thoughts and feelings that are important she keep to herself for one reason or another.
Of course, the outer world matters because the conflicts here keep the reader's pages turning, but this doesn't mean they aren't also interested in what's going on beneath the surface or inside the character's head.
We don't always mean what we say or say what we are really thinking, and our characters shouldn't, either.
This makes the subtext--what's happening beneath the surface--an important part of our story and a great way to express conflict and add depth to our characters.
Be Brilliant!
~Katie~