The Transmogrification Chest is a plot/utility item.
Once carried, any new items are automatically placed into the chest, where they do not count toward current encumbrance. When changing a level (forced) or at any time, the chest may be invoked to destroy the items inside, and return gold; more powerful items produce more gold.
Once the Sher'Tul Fortress is available to the player as a base, the chest will also transfer power to the Fortress every time an item is consumed. This power can be used to unlock features in the fortress, such as changing the look of the 'butler' or opening the farportal.