Disclaimer: I am not a physics expert, neither I guarantee the following explanation to be entirely accurate, but I will try to make things simpler.
First: Let's us break it down into two keywords, obviously space and interia.
Space (or a frame of reference) in 3D : is a combination of rotation and translation. So when we say a point is relative to a specific space, we mean that its coordinates are measured relative to that space orientation and translation. More on this here.
When you measure temperature you measure it relative to a certain reference (could be the zero or other value in your thermometer). When you say 10C you mean 10°C relative to 0°C where 0°C was defined as the freezing point of water. (Note: This is not entirely accurate more info here.
The same goes for bodies motion, we measure them relative to something else, whether it was an observer space or any other body space.
Inertial space is a reference frame that is itself not accelerating; that is said, objects being observed should appear appear to experience constant speed relative to each other.
Remember that constant speed means zero acceleration,
Newton's second law states:
F = mass * acceleration
acceleration = F / mass
And according to Newton's first law:
When a object is viewed in an inertial reference frame, an object either is at
rest or moves at a constant velocity, unless acted upon by an external
Inertial space is a space where Newton's laws holds true. This is important for calculations to remain simple. For example choosing a non-inertial space (an accelerating space) will make objects appear to have ambient acceleration even without having force acting on them, at this state Newtons laws of motion doesn't hold anymore.
It's easy to connect the first and the second law. If it was not for inertial space, neither will hold true.
An example of a non-inertial frame, an observer setting on an accelerating rotating disk, this will particularly complicate calculation, and will complicate even the slightest observations; such as the linear motion of two balls as observer from that location, (this needs some imagination) the balls will have acceleration relative to the observer, which makes Newton's first law no hold anymore.
Inertial frame of reference in Gamedev and graphics
We just assume it exists, we never select a frame of reference that is accelerating, physics simulations are calculated relative to world coordinates, which is fixed. If you want to calculate physics relative to an accelerating camera (please don't mix the coordinates where things are rendered and the coordinates where physics is calculated) don't do that, the calculation will be redundantly complex. We never calculate physics an relative to an accelerating eye coordinates (even if you did you should select the coordinates that have Zero or constant velocity).
Why did the chicken cross the road?
It is the nature of chickens to cross the road.
Because no force caused the chicken's state of uniform road crossing to change.
Is the chicken crossing the road or is the road moving under the chicken?
More info here. And simple video introduction here.