Do prisoners ever finish their sentence and get released?

As per the Alpha 11 release notes, this is now possible:

Prisoners now count down their remaining sentence whilst in your jail.
Once they have served their full jail term they are automatically released.
They will walk to the exit and be allowed to leave by your guards.
Their nameplate will flash "RELEASED"
NOTE: We count down sentences at an accelerated rate - otherwise nobody would ever be released
NOTE: We do not yet support early release due to Parole

Therefore, prisoners will now be released once they have served their time - and they will even serve their time a little faster right now. This is due to the lack of a management feature to reduce sentences (as in: Parole, or other ways of releasing them early).