During pregnancy, the umbilical cord connects through the fetal abdominal wall to a set of arteries and veins inside the fetus which deliver blood to the fetal heart. These have no use after birthing, so just as the cord falls off the outside of the baby, inside the baby these now-obsolete vessels shrivel into a little fibrous remnant (umbilical ligament).
The muscles of the fetal abdominal wall had developed in such a way that there was a little window to let these vessels pass through. After the cord falls off, new muscle doesn't grow to close the hole, there is only fibrous material (fascia) there, holding the sheets of muscle together. If the hole is too big, it's a hernia, exactly as emnic explained. A very large umbilical defect is associated with omphalocele (babies born with intestines outside the belly). The hole is never too small, that would have resulted in embryonic death very very very early.
So it's essentially genetics and luck, how big that internal scar from your specialized fetal vessels is. There's no way to influence it from the outside. It's pretty common for young'uns to have a small umbilical hernia (oversized outie) that closes on its own.
When I'm not pregnant, I can stick my pinkie finger in my belly button and (with some concentration) flex my stomach muscles horizontally and then vertically, and feel the abdominal muscles pressing on my finger, first side to side and then up and down, because my belly button is wide enough that I can get my finger all the way through my muscle wall. But it's still an innie, because I have more body fat outside the muscles than inside.
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