It's just in reference to the outseam on the inside of the leg. I personally am not certain of the functional purpose, but I think true selvedge is done to keep the shape of the denim, as the twill weave tends to warp over time. It takes a lot more denim fabric to create a nice full selvedge seam, and different brands and factories have different ways of doing selvedge, some being more decorative than others (i.e. Evisu is highly decorative vs. Helmut Lang is very simple). Generally it's just a nice touch that is put on higher end jeans, from my understanding, although many people take it way too seriously. People who turn up/cuff the bottom of their jeans generally do it to show off the selvedge (unless they dont know what it is, and they're just going for the 50s style).
Not exactly right. Selvedge actually refers to the weaving at the end of a piece of cloth that prevents fraying and unravelling. This only happens on true shuttle looms because in modern, projectile looms, the yarns are shot straight across rather than being woven side to side like in vintage looms. So unless the denimn in your jeans are made from vintage looms, you are not going to have true selvedge jeans, although a lot of companies will do a crude approximation of the chain stitching found at the selvedge that was an additional measure to prevent fraying, and is taken by many to be the selvedge itself. From denim companies which use old vintage looms that companies like Denime, 45RPM and Evisu use, *all the jeans are selvedge jeans because the looms were so narrow that it was necessary to cut the outseam all the way to the selvedge to have enough material to make the jeans. On *newer* vintage denim looms which made a much wider cloth, you would have selvedge jeans and non selvedge jeans, depending where the jeans were cut from on the material. *No* jean made from denim from modern projectile looms (and that includes most of the premium jeans companies we are familiar with) is technically a selvedge jean. They made be fine denims, but selvedge denims they are not.