Kirito is attacked by a former player of SAO and deadly injured. To save his life, he enters a coma and therefore an experiment which involves the creation of artificial inteligence. Simply put, they uploaded the consciousness of many babies into a big computer and watch as they evolved. In that "game" time goes a lot faster ( Brain Burst from Accel World), meaning that 10 years in there equals to 4-5 days in real life. During that time Kirito meets that artificial inteligence made on that "game", he lives there for 3 years and he actually gets involved into the plot of that world, meanwhile, in real life his life is pending on those machines... (He suffered brain damage that can only be healed this way, according to info from the books. ) Idk how to resume it better, here it is, the 14th volume is the next to come and a 15th one is already rumored. The end of this saga will get us to the origins of Accel World.
What is this outskirt of Rulid village in the Underworld supposed to be?
A city made of people who are actually Artificial Intelligence. They act just like normal people, without knowing that they are actually virtual...
Is this supposed to be a flashback?
Nope, this is the saga next to Mother's Rosario. Posibly a hint to Accel World.
Is this in a new game? Its an experiment made by the Japanese Government to develop artificial inteligence for military purpose.
Is this in the underworld of ALO?
It has nothing to do with ALO. Its a completely new Virtual World, made for the IA created by the government. ( They uploaded babies consciousness to a virtual reality, they were grown up by ppl who voluntiered to grow them up in that "game". In the end , they developed a Civilization, Rulid village is only a small comunity of that world.