The Tardis is a Time And Relative Dimension In Space. It is a dimension in its self. It is bigger on the inside, because it isn't in front of you, until your in it.
the Doctor has explained that it's "dimensionally transcendental", and that if you knew enough advanced hyper-dimensional physics to understand the answer, that's all you need to know. Unfortunately, you probably don't know enough advanced hyper-dimensional physics, being a 21st century human and all.
But, even if we can't build a TARDIS, we can guess what it would mean.
Imagine that you were a 2-dimensional stick figure walking around flat on the ground. Now imagine an A4 sheet of paper (or a letter-sized sheet, if you're American) standing up vertically. That vertical sheet is the TARDIS's insides. The line where the sheets joins the ground is the TARDIS's exterior. When you walk through the door, you get rotated, so you're now on the vertical sheet.
So, the outside of the TARDIS is only as big as a sheet of paper is thick, but the inside is as tall as a whole A4 sheet, about 300 times as big.
Hopefully that helps.