what is transfer switch and how it works

Think of a transfer switch as the device that lets you choose between one of two sources, i.e., an engine-generator or the utility. You get to choose "A" or "B" but not both.

For customer source supply, the big question is typically "open-transition" or "closed-transition" switching. In an open transition, you will open "A," ... at which time you have an outage ... then close "B." A closed-transition, you will close "B," ... at which time you are paralleled with the two sources, which for AC power means they MUST be in phase and at the same frequency ... then open "A."

There is a ton of information available on internet, either through Google or Wikipedia to mention two.