Yeah it's all inside. It's the cushion between your shin bone and your thigh bone.
I actually have some pictures of while they were doing the surgery with a camera in my knee. Before and afters. A big flap of it was all torn off and hanging to the side, then afterwards it was back in it's place. xD
They put me under, and I knew they were going to. I asked my parents to record me, but they couldn't figure out how to record with my phone. Apparently I tried to get out of the bed several times, and I kept asking to see my knee.