KidGPS uses GPS (GPS - Wikipedia) to determine its position. Since GPS is satellite based, it is understandable that the most accurate position readings will come when you are outside with an unobstructed view of the sky. This does not mean that KidGPS will not determine your approximate location while indoors, it simply means that the position you see will not be exact.
There are situations where KidGPS might not be able to determine its position, such as in deep underground parking decks, or deep interior rooms of large buildings. This is simply the result of KidGPS not being able to receive satellite positioning data due to the large and dense structures surrounding it.