Transgendered persons can be transsexuals, transvestites and other gender variant persons - the term transgendered is non-specific. Transsexuals are seeking or already have had sex reassignment surgery — the "sex change operation". Other transgendered persons cross-dress for a variety of reasons, but only a small minority do so for illicit purposes (solicitation, shoplifting, and various types of fraud). Transgendered people are not only male-to-female — there also are female-to-male transsexuals, as well as "mannish" or "passing" women, who have masculine gender expressions and are often assumed to be lesbians, though this is not necessarily the case.
Most transgendered persons identify themselves as heterosexual. Their sexual orientation is separate and distinct from their gender identity or expression. However, most people perceive transgendered people to be homosexuals, and thus they can become victims of hate crimes and discrimination in ways similar to gay men and lesbians.
Transsexual people who want sex reassignment surgery are usually required to live full-time in a gender opposite their birth sex for at least a year to qualify for it. These individuals may seem to you to be a "man" living as a woman, or a "woman" living as a man. If you encounter such a person, he or she should be referred to at all times with respectful terms appropriate to their present gender, such as Ma'am, she and her for transsexual women (male-to-female) and Sir, he and him for transsexual men (female-to-male). When in doubt about how to address or refer to someone, just ask them.
Transgendered persons often have IDs that do not match their physical sex or chosen names, although it's common for transsexual women and men in gender transition to change their names and obtain driver's licenses in their new names. However, their sex status cannot be legally corrected until they have had sex reassignment surgery, which means their driver's licenses may show a woman's name with a male sex, or vice-versa. Nevertheless, their licenses are legal and should be accepted as such. Many transsexual people also carry with them letters certifying their transsexual status from their psychotherapists, who may be contacted in cases of emergency.
Any transgendered person who requires incarceration and is not a post-operative transsexual should be put in a separate cell, away from the other prisoners. Post-operative transsexual women should be placed with the rest of the women's population, but only post-operative transsexual men who have had phalloplasties should be placed with the men's population. Other transsexual men should be placed in a separate cell, away from the other male prisoners. If in doubt, ask them.
Regardless of how different transgendered people may seem to you, and how difficult they are for you to understand, they still deserve to be treated in the same way and with the same respect that you yourself would expect. To do otherwise is to intentionally show disrespect to transgendered people, and that is called transphobia, which hurts as much as racism, sexism or homophobia.