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A transfer switch is a device that moves power form one source to another. These can be manual or automatic. An example of when a switch is needed is when you have a generator set up for when the power goes out in your home or business. You just flip the switch and you have power again via the generator.
Typically if the power goes out in a home you would need a generator with at least power to keep the refrigerator and freezer going and some lights. A transfer switch allows you to start your generator and transfer the power input from the electric provider to your generator or battery backup system.
Hospitals are very dependant on automatic transfers switches due to all the life support and various other safety equipment needed. Lighting and power is very critical in these institutions. Most modern technology providers like website hosting as an example need to have power backup systems to run their servers.
Could you imagine going to the Internet only to find out that the website you are looking for is down? It is very important to have a backup plan for unexpected power outages.