After dismantling an old PC power supply I recovered what seemed to be the primary transformer, after following the traces etc its purpose became less clear as it has two terminals and a ground connection , it receives ≈ 250VAC on one terminal and outputs an unknown voltage on the other terminal, which feeds into a bridge rectifier which feeds into 2 200v filter caps. This leads me to believe that it is used as a step down transformer but if so I don't understand its operation, could someone please clarify or explain the funtion, thank you.
It's exactly what Brian Drummond says, it's a common mode choke: -
Some may have integral capacitors built in and thus you get the 3rd terminal that connects to ground. Some may not and thus rely on seperate capacitors to ground. Some also have an additional capacitor across live and neutral terminals like this: -