Wikipedia - Google Video of a power distribution substation transformer overheating!

• Transformers work with Alternating Currents only.
• The input coil is called the Primary (P).
• The output coil is called the Secondary (S).
• The voltage (V) is stepped up or down in proportion to the number of wire turns (N) coiled round the laminated soft iron core.
• V_P / V_S = N_P / N_S
• The core is made of magnetically soft iron. This is easily magnetised and de-magnetised.
• The core is laminated to prevent eddy currents.
• The laminations are thin sheets of soft iron. The sheets are insulated from each other.
• Eddy currents are unwanted currents induced in the iron core. These waste energy and heat up the transformer. Laminating the core prevents most of the eddy currents flowing.
• Big transformers are more efficient than small ones, Proportionally less magnetic energy is lost. Thicker wire has less resistance than thin wire and proportionally less waste heat is generated in the wire.
• It is important not to saturate the iron core. This happens if the core becomes magnetised to the maximum possible extent.
• If the core saturates, during the saturation the transformer efficiency drops to zero. This causes excessive current to flow and severe heating of the transformer.
• If there is any direct current flowing, the transformer core is much more likely to saturate.
• Currents induced in power lines during solar magnetic storms can cause power distribution transformers to saturate. This can trigger the shutdown and possible damage of power distribution grids.
• Wikipedia on cores.

Common Transformer Structures