Outside Diameter.

I would have never guessed that........... Tell me this if I am correct or not. I had a lot of debates on this. 235 is the width, 55 is the height of the tire itself(The rubber part from the top to the rim part) and 16 is the height of the inside part were the rim goes. Correct?

Yes. 235 is the width in millimeters. Divide by 25.4 to get inches.
55 is the aspect ratio ( or height ). Multiply the width by the aspect ratio to get the measurement from the outside of the rim to the outside of the tire. ie. 235 x 0.55 = 129.25 mm or 5.09". So 5.09 + 5.09 + 16 = the overall diameter = 26.2"
Easy huh. Works that way with all sizes. Now you can do it.