First, I am not your attorney, so I can only answer your question in a general way. To get a specific answer from an attorney in your state of Indiana, please go to the American Academy of Adoption Attorneys website to find someone experience in this area of the law.
Your sister does have the right to make her own placement plan for her baby. It would be extremely difficult for you to interfere with that plan as a parent has the right to decide what is best for their child. However, if you wish to adopt the child, your sister and the baby's birth father would have to agree. If only your sister agrees, it is still possible that your adoption could go forward, depending on the laws of Indiana with respect to the birth father's rights.
If you actually complete an adoption, the child will be your legal child, just like you gave birth to him. This is still a "normal" adoption, but is generally referred to as a relative adoption. If an adoption decree is issued by a judge, your sister cannot change her mind and take him back unless she is able to say her consent was obtained by fraud, duress, or mistake. She has to make that charge within a certain amount of time from the date of the adoption decree. That amount of time differs from state to state.
If you would like to adopt your nephew, you should see if your sister is willing to place the child with you. If so, you should obtain the services of an experienced adoption attorney as soon as possible.