Basic idea of a transformer.

.A transformer either lowers or raises voltage level of electrical power.When voltage is raised from a lower  level to a higher level a step-up transformer is used and for the opposite a step-down transformer is used.The main thing that you should keep in mind is that frequency of alternating voltage is same on both sides."A TRANSFORMER DOES NOT GENERATE ELECTRICITY".
BASIC PRINCIPLE:-
Basic principle of a transformer is that EMF is induced in the secondary winding due to the flux change in primary winding .Iron core which is a magnetic material is taken as it has high permeability that is low reluctance so that it can assist in flux growth for efficient power transformation.
For your  convenience I have added some more basic facts that will be helpful to you:-
Eddy current losses -This type of losses occurs due to the changing magnetic flux and heat is generated in the core itself.Cure:-Lamination severely reduces this loss.
Hysteresis loss - It occurs due to orientation of magnetic dipoles of magnetic material in alternating magnetic field.Cure:-Silicon(small %) should be added to laminated steel sheets.
Copper loss - It occurs in the windings and is also called (I^2 R) loss and it is variable as it varies with the magnitude of load current.