The Jargon File (version 4.4.7, 29 Dec 2003):

padded cell
 n.

    Where you put lusers so they can't hurt anything. A program that limits a
    luser to a carefully restricted subset of the capabilities of the host
    system (for example, the rsh(1) utility on USG Unix). Note that this is
    different from an iron box because it is overt and not aimed at enforcing
    security so much as protecting others (and the luser) from the consequences
    of the luser's boundless naivete (see naive). Also padded cell
    environment.


The Free On-line Dictionary of Computing (30 December 2018):

padded cell

   Where you put lusers so they can't hurt anything.  A program
   that limits a luser to a carefully restricted subset of the
   capabilities of the host system (for example, the "rsh"
   utility on USG Unix).  Note that this is different from an
   iron box because it is overt and not aimed at enforcing
   security so much as protecting others (and the luser) from
   the consequences of the luser's boundless naivet'e (see
   naive).  Also "padded cell environment".

   [Jargon File]

   (1994-11-30)