The Phantom Zone was discovered by Superman's father, Jor-El, and used on the planet Krypton as a method of imprisoning criminals. Previously, criminals were punished by being sealed into capsules and rocketed into orbit in suspended animation with crystals attached to their foreheads to slowly erase their criminal tendencies; Klax-Ar was one criminal who received this punishment but escaped. Gra-Mo was the last to suffer the punishment, for it was then abolished in favor of the Zone.
The inmates of the Phantom Zone reside in a ghost-like state of existence from which they can observe, but cannot interact with, the regular universe. Inmates do not age or require sustenance in the Phantom Zone; furthermore, they are telepathic and mutually insubstantial. As such, they were able to survive the destruction of Krypton and focus their attention on Earth, as most of the surviving Kryptonians now reside there. Most have a particular grudge against Superman because his father created the method of their damnation, and was often the prosecutor at their trials. When they manage to escape, they usually engage in random destruction, particularly easy for them since, on Earth, each has the same powers of Superman. Nevertheless, Superman periodically released Phantom Zone prisoners whose original sentences had been completed, and most of these went to live in the bottle city of Kandor.
The sole inmate of the Phantom Zone who was not placed there as punishment for a crime is Mon-El, a Daxamite who fell victim to lead poisoning. Superboy was forced to cast him into the Phantom Zone to keep him alive, where he remained until the time of the Legion of Super-Heroes when Brainiac 5 created a medication that allowed him to leave safely.
Superman developed communications equipment for the Phantom Zone, like the Zone-o-Phone, and refinements to the projector. In addition, the city of Kandor uses the Phantom Zone regularly, with parole hearings sometimes chaired by Superman. However, since the departure of Kandor, that is, outside of Mon-El, most of the inhabitants were confined to lifers and generally not inclined to making conversation with their jailer. As for Superman himself, as much as he appreciates how the Zone is necessary to contain its Kryptonian inmates and shelter Mon-El, he apparently privately harbors concerns about the justness of its penal use.
Interestingly, Moore briefly examined the idea of the Phantom Zone being too harsh of a punishment in his For the Man Who Has Everything story in Superman Annual #11. Widely regarded as the best Superman story ever written, Superman is tricked into thinking he lives on a fully-realized Krypton. Political forces are clashing between the more progressive younger generation and the more conservative older generation of his father. The younger generation have taken up Phantom Zone imprisonment as an issue, to the point of violence, which can be seen in these panels:
Of course Moore doesn't get into the moral ramifications of it in the pages of Supreme (unless he did so on the mysteriously disappearing page 24 of the first issue of Supreme: The Return). Then again, it didn't really seem like the inmates in his Hell of Mirrors had reformed, either.
