If the pegging points are to the outside of the flaps, then the flaps tuck inside (under the groundsheet). If the pegging points are to the inside of the flaps, then the flaps lay outside.
Depends on the weather - if it isnt too windy then I let them lie on the outside. If it is windy then I peg them outside as well. This makes the tent hug the ground and keeps out all draughts