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Does it mean that no inbound access whatsoever is allowed on the instance?
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Inbound rules control the incoming traffic to your instance, and outbound rules control the outgoing traffic from your instance. When you launch an instance, you can specify one or more security groups. If you don't specify a security group, Amazon EC2 uses the default security group.
Referencing a security group in the source field does not provide rule inheritance. Referencing a group in this way allows inbound access to group B from resources in A. Note that you can assign multiple security groups to a single instance.
Terms in this set (24) When creating a new security group, all inbound traffic is allowed by default. A newly created Security Group has no Inbound rules (denies all traffic) and allows all outbound traffic.
No rules in a security group means that no remote IP Address can access your instance on any protocol.
However, it's important to remember that security groups are stateful. So if you have an outbound rule in your security group for eg. HTTP and you send a HTTP request from your instance to a remote HTTP server, the instance will be able to receive the response, even though port 80 is blocked by your security group.
When a connection is made to or from an instance, a "state" is created that allows bidirectional communication - but only for that connection.
You can read more about this in the docs here
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