The #1 problem that people encounter with chrooted SFTP is that OpenSSH, by default, requires that root owns the whole path to a given user's chroot directory. In other words, if you want to chroot someone into /home/someone, / must be owned by root and have permissions no wider than 0755, /home must be owned by root and have permissions no wider than 0755, and perhaps most surprisingly, /home/someone must be owned by root and have permissions no wider than 0755. In your case, you want to chroot people into /var (I'm not even going to ask), so you avoid this permissions problem, but in other cases where it's unavoidable, you may want to look into
As to the actual chrooting, you've got two options for how to go about it: either by group or by user. In either case, you'll edit the sshd_config file. For group-wide, it'll look like:
Match group sftponly
For per-user configuration, it'll simply be:
Match user sftpdude
Note that internal-sftp wasn't supported until OpenSSH version 5 or so, so you may have to compile a custom copy of OpenSSH if you don't have access to a v5 package.