When a balloon is placed inside a bottle (covering the entranace), it will not inflate, since the bottle is already filled with air particles with no escape route. When you punch a hole in a bottle, the air molecules in the bottle have an exit. They are pushed out as a balloon fills the space inside, resulting in room for the balloon to inflate.
If the hole in the bottle is then plugged, the balloon stays inflated even when the mouth is removed. This is because the high pressure air in the balloon pushes outward harder than the low pressure air in the bottle. But, why is the pressure inside the bottle lower? There is less air, which makes the pressure lower, but there is also volune reduction, as the balloon takes up part of the space of the volume, which makes the pressure higher. Why is the first factor higher than the latter?