This is a sectioned off area of the coop. It's used for letting broody hens hatch eggs and raise chicks. It keeps other chickens from bothering her or the chicks, but she is still within their sight, and therefore still part of the flock.
When used as a chicken "jail," it is to separate a chicken who is causing problems, like bullying or attacking other birds. Again, the enclosed bird is still within sight, but out of reach.
It can be a fenced off part of the interior of the coop, or something separate and removeable, like a dog crate.