The iron core in a transformer channels the magnetic flux created by the current flowing around the primary coil to link as much of it as possible to the secondary coil connected to it. Transformers can thus step up or step down the voltage of alternating electric currents. Transformers make possible the transmission of AC electrical current over long distances.

Since their invention, transformers have been essential in the wide distribution and utilization of electrical energy. Early developers discovered that cores constructed of solid iron resulted in significant current losses, and they adjusted the design by developing cores as bundles of insulated iron wire. This was later further adjusted, and more efficient cores were constructed by stacking layers of thin steel laminations. Each lamination was insulated from the adjoining one by a thin layer of nonconducting insulation. The thinner the lamination, the less current that is lost. However, cores made of very thin laminations are expensive to make and used only in high-frequency conditions.

In research, developers have imagined an ideal transformer in which there is no energy loss. The magnetic flux created by the first coil is completely confined within the transformer core, which is of ideal magnetic permeability. Although this does not exist in the real world, it is what developers and designers work toward as they adjust the design of modern transformers.