I used to use it in the early days (sparingly and only for serious transgressions!)
We never called it the naughty step. Agree with 'neutral space' idea.
It was just a place to go to, to calm down and reflect, and basically to let "offender" know that if their behaviour was unacceptable in a group situation, and they couldn't get along with others in a reasonable manner, then they will be temporarily removed from the group.
However, the lesson learned being that it is a privilege to have family and friends and they deserve to be treated with respect, just the same way the child is treated.
And I have found that excluding a child from the fun (or whatever is happening) for a few minutes is effective particularly, as they then don't get lots of attention for the wrong reasons.
As others have said, it also has the advantage of providing a breathing space for everyone to calm down, and not act out of anger, parents included.
Worked well for us.
Still does in a way as dd gets sent to her room (very occasionally) now if she is totally out of order.