@yanksali
I would like to add a few details to the solid information of the previous posters.
The red light on the transformer does come on if an electrical short circuit occurs, be it due to bad insulation either on the power cord or in the internals of the transformer. It will also come on if, when operating your trains, a derailment occurs. In that case, turn both handles of the transformer back down to zero, put that which has derailed back on the track and, when the red light goes off, continue your running session.
Also, as it relates to the internals of the ZW transformer, DO have an experienced Lionel, postwar technician go over the ZW!!!! These transformers can be as much as 70 years old. A good technician can recognize a burned core in the transformer. Also, from many years of play wear, the rollers that make contact with the transformer coil to, by moving the control handles increase and decrease speed of the train, can wear out and in many cases fall off of their holders causing the holders to drag against the transformer coil and cause coil damage.
The postwar Lionel ZW is a GREAT transformer! I own 4 of them. It is a true testament to the quality that Lionel used to put into their products! But the other side of the double-edged sword is that being possibly the highest power output of any toy train transformer, can also be dangerous. Operation of faulty postwar ZW's have been known the cause house-fires.
So, in closing this dissertation, have your transformer THOROUGHLY checked out and restored to safe operating condition if required and ENJOY RUNNING YOUR TRAINS!!!!!