Transfers up to 6MW of electrical power from the electric network connected to the input side of the transformer to the network connected to the output side of it. Kinda like in accumulator bridges:
https://wiki.factorio.com/Accumulator#Isolation_of_Power_Networks

But it works only in one direction. Turn on info overlays (ALT hotkey by default) and an arrow will show it's current direction (inserter arrows need to be turned on in graphics settings). Use rotate hotkey to change direction.

Only draws as much power as needed from source network to power the target network. It has some internal accumulators (6MJ on input and 6MJ on output) which are needed for the control code to work. So it may take some time for power transfer to stabilize (not too long though, just a few seconds).

In order to be lightweight on UPS, it only updates its power transfer once per second. But that's enough due to internal accumulators.