Warnings are handed out, usualy with between 3-5 warning points depending on the severity of what they did. Sometimes we just drop them a PM to tell them they're walking on thin ice.
Once they accumulate 10 points, they are placed into moderation. So its a gradual thing.
Some particularly prolific users, people who have been identified as warez or piracy users, or people flagged up for other reasons can get placed into moderation in order to keep an eye on them without that build up, but this is reserved for special cases.