Transformers are used to increase or decrease voltage levels for efficient power transmission and distribution. They work by exploiting mutual induction between two coils: voltage applied to the primary coil induces a voltage in the secondary coil. This allows stepping voltage up or down while maintaining frequency. Efficiency is improved by reducing transmission current, which reduces power losses. Tap changers on transformer windings allow adjusting the turns ratio to maintain a constant secondary voltage despite primary voltage fluctuations.