Cisco ACL Direction (In/Out) – How to Configure

The direction is always in reference to the router itself. In your example, you have applied the ACL inbound on E0/0. So the ACL applies to traffic from the source entering the router on E0/0.

Which direction you apply the ACL depends on what you are trying to do. But generally, it is better to filter as close to the source as possible. There's no point to allowing traffic to flow through the network, just to end up dropping it at the destination.

The exception is where traffic is allowed to one destination, but not another. If, in your example, the source was connected to E0/0, and you had two destinations on E0/1 and E0/2, where the source can talk to E0/1, but not E0/2. In this case, you would put the ACL outbound on E0/2.

Alternatively, you could use an extended ACL inbound on E0/0 that blocks the destination on E0/2.

Referring to IP in an access list refers to all IP based protocols. You have denied echo replies but all other messages as ICMP redirect, time exceeded, fragmentation needed, echo would be allowed through.

Other IP based protocols such as OSPF would also be allowed to pass through with your ACL.