And the term for locking users into their home directory is chroot jail. It can be done by configuring OpenSSH. Although it may be easier to limit the user's access to SFTP/SSH and just install another FTP service such as vsftpd or proftpd. If you go that way then you will probably want to check out FTPS (FTP over SSL - as opposed to SFTP which is FTP over SSH) for security.

Have a look at this thread for some links to previous discussion on chroot jails with SFTP and vsftpd. There is also a thread here on proftpd.