For inside measuring, the entire ruler case should be inside the frame. The backside of the ruler should rest against the inside of the frame. Different brands of rulers have different add-ons for inside measures. It will say somewhere on the ruler (usually the back) how much to add for an inside measure. This particular ruler has an add-on of 2 inches.
For example, if you read 36 3/16 when the case and hook are inside the frame, the real measurement with a 2 inch add-on is 38 3/16.