I found [this] (http://caminodesantiagoguide.org/history/penance) while looking for information about the Camino for a friend. It is also repeated in almost the same wording on wikipedia. [In english] (http://en.wikipedia.org/wiki/Camino_de_Santiago#As_penance) and atleast [in danish] (http://da.wikipedia.org/wiki/Jakobsvejen#Middelalderen) too. The only source I can find is [this] (http://www.flandes.net/descubre-flandes/index/huellas-espanolas/), given on the english wiki, which seems inadequate at best. I couldn't find mention on Google of such a system, but then again I can't write flemish.
It's a little more complicated than the wikipedia page indicates and I can't really talk about the situation these days as that would be in breach of our twenty-year rule. Basically, what this jumbled info you found refers to is a project initiated in 1982 by a non-profit organisation that deals with juvenile delinquents. They used the walking to Compostela (and other long walking tours) as a way to take the youngsters out of their unfavourable environment and circumstances and give them a chance to reflect on their lives and the choices they had made thus far. They were inspired by the movie Vision Quest that tells of a similar initiative in the US. They claim a forty percent success rate and have done the trip with 450 young people so far. These youngsters were not incarcerated at the time and the trip was not a way to gain their freedom. They participated in it voluntarily after they had been released from the juvenile institutions.