It's not as bad an idea as it sounds. Certainly, it doesn't work the way some thought. You can't punish the fish and expect it to behave better, but I have had some luck with my fish doing this...not so much a time out, just time apart. As mentioned above, it can help with the dominance thing. I had a Male and Female JD, the female was a bit larger and used to torment the mulm out of my male. So, I put her in the midas tank on the other side of a divider and let her live there for a week. The male wasn't so afraid to come out and started seeing the tank as being his, so when I re-introduced the female she wasn't top dog and he wouldn't back down and now they're a happy couple. Always swimming together, rarely biting at one another, and when they do, its' normal, not overly malicious.
I've had similar success with my oscars. They were in a 75G and the larger one started beating on the smaller one, tore him up a bit. I put them in seperate tanks, let the smaller oscar have the big tank for a while, meanwhile the big one lived in the 48G. Put the big one back in the 75 and the little guy stood up for himself, even locked jaws for a day or two with the big one, now they are back to being buddies and following each other everywhere.
So I guess it's not a timeout tank, it's a let the weak one get established in the tank before letting the bigger one back in. I don't think it would necessarily help interspecies fighting, a RD and a Uro aren't going to get along either way unless they have enough space, but it has worked for me with violent pairs.