When a player has broken game rules, players are sent to Federal Jail, this is the Torn equivalent of a game ban and is typically referred to by the community as being 'fedded'
Staff have the ability to send a player to Federal Jail if sufficient evidence is found that they have broken one of the in game rules. Whilst serving time in the federal jail you are unable to access any of the in game features (unlike the city jail), the game is unplayable as a punishment.
You have the ability, should you wish to defend your case with the staff member via the "Federal Report" feature which is available to you. This enables you to interact back and fourth with a staff member (who's identity remains anonymous) to give additional information which could help your case. Should this feature be abused staff have the option to "lock" your report preventing you from contacting them any more.
You have to wait 90 days if you are permanently in federal jail to make a new account, making a new account before hand will get any account you make sent to jail also. This does not apply to restarts, only accounts placed in federal jail due to game rule violations.
Federal jail doesn't cancel out existing punishments, you can be sent to federal jail and still have time on your mail / forum bans when coming out.