First off, no one in this thread that is pro for this feature can be elected to government now ha ha.
What can we potentially do with prisoners?
1. We could sell/give them to other civs
2. kill/punish them
3. ship them off to a prison camp
4. integrate them equally into society
5. release them
6. enslave them
I personally believe that the Dwarves, per the raws and stories, are against 6. If they're against 6 they'd be unlikely to do 1, unless a civ threatens war/requests a prisoner is turned over to stand trial for crimes/war crimes.
So, that leaves 2, 3, 4, and 5
Dwarves seem to be a pretty lawful bunch, so having the individual go to trial and be judged makes heaps o' sense. For crimes against Dwarf kind I can also see them being exported to the Mountain Home to stand trial. If you are the Mountain Home I can see it skipping straight to a send to a secret prison fortress, where the worst of the worst are housed until they are put to death. For the ones who have fewer counts against Dwarf Kind, or aren't leaders in the offending civ, it should be possible find out their desire and release them or integrate them into Dwarven society.
I gotta ask. Why would a slave be unable to skill up? If they do work they're gonna become better at it, that's just natural.
On a different note, for those for an apprentice system. It's commonly accepted that Apprenticeships were a form of contractual slavery. Where, for 7 years the apprentice was considered the Master's property. Sometimes the apprentice would run away and would be returned just as if they were a slave. They did have it better though, usually. Being released from the contract after 7 years, getting room, food, and money, if they did good work.