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Inferno Island is a prison in the middle of the sea. It only appears in the episode "The Inmates of Summer," in which SpongeBob and Patrick are accidentally sent there, thinking it is a summer camp. It has a warden who is extremely harsh and strict with the prisoners and his own colleagues.
The island is essentially the underwater equivalent of Alcatraz Island. It is stationed upon a rocky formation that appears to frequently go through frequent, harsh thunderstorms.
Inferno Island appears to be somewhat close to Sun Fun Island since boats from each island pick up their people (campers/prisoners) on the same dock and also because the counselor was able to get to the island in a raft.