胎内(tainai) was originally written in this dialogue and it means inside the womb. It sounds like 体内 which is also pronounced "tainai" and means inside the body. The daughter answered with ナカ(naka) which literally means inside. So yes it was a punny sex joke that I don't know how to translate..
So scary! My daughter is so scary!Common!?What the hell!?Incest bedroom play?Basic!"Tainai" is?Inside!Breast milk?The best!Immoral feelings?Righteous!Sh-shut up! You want me to use underwear to gag you?That is very common!