Extending on kreed's (correct) reply:
The correct name of the "donut" is a Current Transformer, or CT. The basic principle, is that it gives you a small current, proportional to NET current passing through the middle. For example, if a particular CT has a transformation ratio of 800/5, it will give you 5A on the secondary, for every 800A passing through it.
It is mostly used in commercial and industrial installations, which use more than 100A per phase.
Most of the new electronic meters have small CTs fitted internally.
As kreed said, only one wire goes through. If you put both wires through, you have the same current passing is both directions, which gives a net current of ZERO.
It is this principle, which is used in Earth Leakage Circuit Breakers (ELCBs, also known as RCDs, Core Balance Relays or Safety Switches). Both the active and neutral conductors pass through a small CT inside the breaker, and normally, the net current is zero. However, if there is leakage to earth, there will be less current in the neutral than in the active. This is detected by the CT, which operates a trip mechanism, when the difference in current reaches a preset threshold (usually 30mA).
After it trips, the next thing that happens is that you go over to your switchboard, and thank the little device for saving your life :lol: