Do man-page do sshd_config:
ChrootDirectory Specifies a path to chroot(2) to after authentication. This path, and all its components, must be root-owned directories that are not writable by any other user or group. After the chroot, sshd(8) changes the working directory to the user's home directo- ry. The path may contain the following tokens that are expanded at runtime once the connecting user has been authenticated: %% is replaced by a literal '%', %h is replaced by the home directory of the user being authenticated, and %u is replaced by the user- name of that user. The ChrootDirectory must contain the necessary files and directo- ries to support the user's session. For an interactive session this requires at least a shell, typically sh(1), and basic /dev nodes such as null(4), zero(4), stdin(4), stdout(4), stderr(4), arandom(4) and tty(4) devices. For file transfer sessions using ''sftp'', no additional configuration of the environment is nec- essary if the in-process sftp server is used, though sessions which use logging do require /dev/log inside the chroot directory (see sftp-server(8) for details). The default is not to chroot(2).