I have a theory that Hell's jails are actually something that serves the purposes of the ones in control

Because in Hell the most powerful ones set the rules. So, when someone crosses an overlord or another powerful demon, and is not important or annoying enough to be destroyed immeidatelly, the powerful can just put those small annoying fries on their own personal prisons where they won't be able to annoy them anymore.

Sounds like it makes sense?

Yeah, that makes a lot of sense, good theory.