It is a modified version of the Krusty Krab that has walls surrounding the restaurant and the windows are barricaded. There is a light on top of one of the walls, and the sign is covered in chains.
It was made by Mr. Krabs when Bikini Bottom Jail was full, and was convinced to do so because the lady officer was talking about how if someone opened up an alternate jail, she'd give a load of money. The first prisoner at the Krusty Krab was Plankton, but was put inside SpongeBob for trying to escape. Eventually more prisoners came and the lady officer gave Mr. Krabs more money for them. As a result, Mr. Krabs tasked SpongeBob to make the Krusty Krab look more like a prison, so he put cells in the place. SpongeBob gave mail to the prisoners, which there was a lot of, and Mr. Krabs gave Plankton many punishments. However, the lady officer came back, saying that Plankton's sentence was up, and then Plankton gets away, telling Mr. Krabs that he hopes the Krusty Slammer is worth what he's paying for it.
It went down after Mr. Krabs kicked out all the prisoners, as a result of the customers leaving the restaurant, since the prisoners were throwing tomatoes because Mr. Krabs took away their luxuries. However, they came back because they came to SpongeBob's house overnight and told SpongeBob that they missed him, making SpongeBob put them back in. Mr. Krabs gets mad at SpongeBob for doing this, because he set the prisoners go the previous night. However, the lady officer finds out about this and punishes him by caging him in the Chum Bucket.