"I'm a prisoner here, but I'm also free" means that he can never leave Portugal, as opium is cheap and (almost) legal there. If he comes back to the states, he won't be able to get any. At least, I'm fairly sure he's in Portugal, although it could just as easily be Tangier. Either way, it truly is a great song. He captured the feeling perfectly.
"I'm a prisoner here, but I'm also free" means that he can never leave Portugal, as opium is cheap and (almost) legal there. If he comes back to the states, he won't be able to get any. At least, I'm fairly sure he's in Portugal, although it could just as easily be Tangier. Either way, it truly is a great song. He captured the feeling perfectly.