How does inline Javascript (in HTML) work?

What the browser does when you've got

<a onclick="alert('Hi');" ... >

is to set the actual value of "onclick" to something effectively like:

new Function("event", "alert('Hi');");

That is, it creates a function that expects an "event" parameter. (Well, IE doesn't; it's more like a plain simple anonymous function.)

You've got it nearly correct, but you haven't accounted for the this value supplied to the inline code.

<a href="#" onclick="alert(this)">Click Me</a>

is actually closer to:

<a href="#" id="click_me">Click Me</a>
<script type="text/javascript">
document.getElementById('click_me').addEventListener("click", function(event) {
    (function(event) {
        alert(this);
    }).call(document.getElementById('click_me'), event);
});
</script>

Inline event handlers set this equal to the target of the event. You can also use anonymous function in inline script

<a href="#" onclick="(function(){alert(this);})()">Click Me</a>