There, fixed that for you.
1) What's on their store, and
2) How apps get on your phone, e.g. they must be codesigned by Apple.
The former is where they apply their content standards. The latter is a (very effective) security measure.
But, for example, Apple doesn't care in the slightest if I make a hardcore pornography app, sign it with my own developer cert, and install it on my phone. They only care if I try and submit it to their store. Similarly, they don't care if I open up Safari and visit some pornographic website, even if it uses HTML5 offline mode and gets added as an independent icon to my home screen.
You don't know that. They don't know you've done this and they can't know you've done it, so how you do you if they care or not?
Apple has been pretty open about the fact that they just care about what's on their storefront. The only reason that this effectively means they control what's on your phone is because most people can't install apps on their phone except via Apple's App Store. Although, as usual, everyone in the world is free to view whatever objectionable website they want.
It is illogical to block just this phrase and not the many others that would be far worse.