"outside certain limits, lying beyond the boundary," 1660s, from out- + present participle of lie (v.2). Meaning "remote from the center, lying at a distance from the main body" is attested by 1680s.
Entries linking to outlying
out-
in Old English a common prefix with nouns, adjectives, adverbs, and verbs, "out, outward, outer; forth, away," from out (adv.). The use was even more common in Middle English, and also with the senses "outer, outside, on the outside, from without, external, externally; apart; greatly, extremely; completely, thoroughly, to completion." Other senses of out that extended into the use as a prefix include "beyond the surface or limits; to the utmost degree; to an explicit resolution."
In composition out has either its ordinary adverbial sense, as in outcast, outcome, outlook, etc., or a prepositional force, as in outdoors, or forms transitive verbs denoting a going beyond or surpassing of the object of the verb, in doing the act expressed by the word to which it is prefixed, as in outrun, outshine, outvenom, etc. In the last use especially out may be used with almost any noun or verb. [Century Dictionary]
lie v.2
"rest horizontally, be in a recumbent position," Middle English lien, from Old English licgan (class V strong verb; past tense læg, past participle legen) "be situated, have a specific position; remain; be at rest, lie down," from Proto-Germanic *legjan (source also of Old Norse liggja, Old Saxon liggian, Old Frisian lidzia, Middle Dutch ligghen, Dutch liggen, Old High German ligen, German liegen, Gothic ligan "to lie"), from PIE root *legh- "to lie down, lay."
Especially "to lie in bed," hence often with sexual implications, as in lie with "have sexual intercourse" (c. 1300), and compare Old English licgan mid "cohabit with." To lie in "be brought to childbed" is from mid-15c. To lie to at sea is to come to a standstill. To take (something) lying down "receive passively, receive with abject submission" is from 1854.