Hi @Akaash --

According to the manual pages, it transfers files using the FTP extension of an SSH link:

http://www.openbsd.org/cgi-bin/man.cgi?query=sftp-server

sftp-server is not intended to be called directly, but from sshd(8) using the Subsystem option.

Which explains the system used.

http://www.brennan.id.au/16-Secure_Shell.html

The sftp (SSH File Transfer Protocol) subsystem allows the copying of files between remote server and host workstation using the ssh daemons encryption system for security. Secure FTP and Secure copying are covered a little lower.

Subsystem       sftp    /usr/libexec/openssh/sftp-server

My guess would be to set up SSH correctly first.

http://www.linux.com/archive/feed/62254

sftp prompts for a password, and on successful authentication, presents a shell with an sftp> prompt. Once in the sftp shell, you can run commands similar to those available on FTP, such as cd, lcd, ls, chmod, chgrp, get, put, rename, and rmdir. You can end the session by typing exit at the prompt.

gFTP can communicate over SFTP so I assume it will use a normal SSH connection to begin with, then 'translate' the sftp commands to copy files.

NB: I can't vouch for this as I only run a sometimes-on standard FTP server; it's just what I've picked up from Google!
If we can put together a decent How-To, we can put it in the docs site (http://doc.slitaz.org).

HIH.