Gandalf was always traveling outside the borders of the Shire, and so Frodo is fascinated by the tales and stories of the outside world. Hobbits only know of their land, the Shire. And they don't really care what happens to the outside world, they really just want to live in peace, though they're not aware of the dangers that could happen.
It is very simple, Silver.
Hobbits are very insular and rarely leave their home. People like Bilbo- and later Frodo- are considred very strange for doing so.
And in the last 1000 years before LOTR, very few people have ever come to the Shire either. In its own way, you could consider the Shire to be entirely cut off from the rest of the world, as very few from elsewhere go there, and very few in there go out.
Gandalf was their best know visitor from the 'outside world' and hence always raised interest.
This was somewhat workd into the plot, as Sauron and little idea of what Hobbits were and where they came from- he never imagined his ring was there.
He was talking about outside of The Shire. No one knows of hobbits, remember? Remember when Merry and Pippin met Treebeard in TTT and he thought they were "little orcs" or orc spies or whatever and Merry said "no we're hobbits! halflings! shirefolk!" and Treebeard didn't know of hobbits...remember? And hobbits rarely leave The Shire so Frodo wouldn't know what's going on outside The Shire.....Ha I'm so smart *grins*