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Though both manuals and automatics utilize some type of internal fluid, the context of the phrase is almost always applied to the red stuff found inside automatics. This fluid is essentially a type of thin oil, but contains a number of crucial additives for transmission duty.
Function
Aside from lubrication, the purpose of transmission fluid is act as a coupler in the torque converter, and to provide a hydraulic means to actuate the transmission's clutches and control mechanisms.
Appearance
Transmission fluid is a deep red. A special dye is added to it to allow the vehicle owner to differentiate transmission oil from engine oil in the event of a leak.
Viscosity
Most transmission fluid in its cold state is similar in viscosity to 15 weight motor oil.
Cooling Additives
Transmission fluid has a number of additives to prevent scorching under the heat of clutch engagement.
Other Uses
As it is essentially an hydraulic oil, most types of transmission fluid can be used to top off power-steering reservoirs in a pinch. However, power steering fluid should never be used in a transmission, as it does not contain the proper additives.
Source:
Resource:
How to Change Transmission Fluid (Video)
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