The power transformation equation relates the input and output power of a transformer, specifically considering the ideal and non-ideal characteristics of the device. In an ideal transformer, the equation states that the input power equals the output power, but in reality, factors such as losses due to resistance, leakage inductance, and core losses lead to deviations from this ideal scenario. Understanding this equation helps in analyzing the performance of transformers in real-world applications and is crucial for designing efficient electrical systems.