"Inside baseball" refers to using jargon, specialized knowledge, acronyms, first names instead of full names, or other such things when speaking and writing. Using shorthand of this sort is simply more efficient when among friends, colleagues, or other "insiders." But there's a larger reason for inside references: They subtly increase the bond between the people in the know. If I tell you that Jake is sick today, and you know who Jake is without me needing to use a last name, that reinforces a defined ingroup based on our common experiences, knowledge, vernacular.
When you're with outsiders, you don't use inside references. I'd say Jake Smith, not Jake. I'd say "customer relationship management," not CRM.
Where it gets tricky is when you're in a group where there's both: some true insiders to you or the topic you're speaking/writing about, some people who are not.
When you make inside references and outsiders read/hear them, outsiders do not understand the content itself and, more importantly, feel excluded. They're in the outgroup. Sometimes the effect is trivial or inconsequential; other times it's small but meaningful.
I've been in group meetings where a few people who've worked together a long time crack an inside joke and all of us who didn't get it immediately feel like outsiders (relative to whatever bond they have). The people in on the joke feel closer, but this isn't great for overall team work and team bonding.
Romantic couples tend to do this a lot, actually, and it's annoying. You're out with a couple and they turn to each other and wink or quietly chuckle for a moment and while they feel closer, you're simply reminded of your outsider status relative to their communal bond.
So what's the right negotiation of inside vs. outside references when in a group of insiders and outsiders?
One idea: use "Invisible Winks" in your writing or speaking. A real wink, the closing of one eye, is a non-verbal cue to another insider usually about some mutually known knowledge. But a real wink is often seen by other (outsiders) in a physical context; it's also impossible to deploy in a written context. That's why the effective wink I'm talking about (in-person or in writing) needs to be "invisible" and context-agnostic. The key to an invisible wink is that insiders get the wink while outsiders do not notice the wink; additive to insiders, neutral to outsiders.
Suppose I were to write a blog post about a recent plane flight and mention that I won the critical armrest battle. For the majority of people reading this, that means nothing beyond its surface semantic content. And it's fine – they read it and move on. But for people who've been reading this blog for several years, they get the history behind the reference. It would serve as a special wink to an insider: Hey, you get the history.
Andrew Sullivan wrote a blog post awhile back (that I can't find for the life of me) in which he ended with a sentence not in quotation marks that was actually a sentence from a Yeats poem. Again, he doesn't quote Yeats with quotation marks, but he closes with Yeats's words, which happened to fit the topic perfectly. Those who didn't know it was Yeats presumably read it and absorbed it normally. Those who did catch the reference found an easter egg and felt smart — and closer to Sullivan as a result. It was the perfect invisible wink: greater bond with insiders, neutral effect on outsiders.
David Foster Wallace did this a lot, too. His writing is packed with hidden references and allusions, but not in a way where outsiders (i.e., people who don't pick up on the allusion) feel like they're "missing" something. Insiders get them, outsiders do not but do not realize they do not, and everyone is happy. As a result, DFW obtained both a mainstream audience and deep engagement with one portion of that audience. It's rare especially in academic writing and even in mainstream novelists.
In a real life, insider/outsider mixed context, an invisible wink may simply be the utterance of an inside reference without the chuckle, physical wink, or color commentary on the history of whatever it is being discussed–and only the utterances that don't make outsiders feel excluded.
Does this all sound insanely oveanalzyed? Maybe, but I think it's important. When I think about socially brilliant people, they possess a remarkable sensitivity to insider/outsider dynamics when speaking and writing to groups. It's part of what makes them socially brilliant.
Bottom Line: The best inside references strengthen bonds with those who get it while not being so obviously inside baseball that outsiders feel excluded.
Related point: I think Tyler Cowen once said that he sometimes uses fancy economic terms on his blog without defining them because it creates an aspirational effect for the portion of his readers who are not professionally trained economists. When you use a term and do not define it or even link to Wikipedia, it signals to readers that you assume they know the meaning. It gives them an opportunity to elevate themselves. Essentially, he's giving outsiders the opportunity to feel like insiders–once they brush up on their econ knowledge.
(thanks to Stan James for helping brainstorm this idea)