I think the inertial altitude is the absolute altitude above the earth.
An altitude on a barometric altimeter is actually just a pressure. For example FL200 is the level in the atmosphere with 465 milibar of air pressure. The true distance from that flightlevel to the sea level may be far off 200.000ft. It all depends on the atmosphere. On hot days, with high pressure on the ground, you will fly actually higher than the altimeter indicates, on cold days in an atmospheric depression you will flight lower. But so will everybody else, so you don't hit each other. (But watch out for mountains, they don't play along
)
The inertial altitude is the absolute altitude. So if you fly 200.000 inertial altitude, that is unrelated to the pressure around you, so your altimeter will probably not indicate 200.000 ft.
The big question is: how do you accurately measure inertial altitude?
ATCast