It's a tricky one - read the paper. I think what he's saying is that there's no way for a person in a simulation (assuming there is no intervention) to refer to the 'outside' world in which the simulation is taking place. Here's a crude analogy: Suppose you were a two-dimensional being living on a flat plane, embedded in an ambient 3D space. Then Putnam would want to say that you cannot possibly refer to "up" and "down". Even if you said "there is a sphere above me" and there was a sphere above you, you would be 'incorrect' (in the same paradoxical way).