What role does transformer oil play inside a transformer during operation?

Transformer oil provides dielectric insulation between energized parts and to ground, suppresses arcing, and transfers heat from windings and core to radiators or coolers. It also protects solid insulation by reducing oxygen exposure in sealed systems and by carrying away moisture and byproducts during treatment. Oil condition directly affects reliability, so utilities monitor BDV, moisture, acidity, dielectric losses, and DGA to detect incipient faults early and plan filtration, reclamation, or replacement before failure occurs.