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Why transformers are needed in Ethernet interface?

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The transformer isolates the device from the line so no DC current will flow between the devices if there is a difference in voltage between the two.

Termination keeps the signal from reflecting off the end of the transmission line. Termination is usually just a resistor that matches the impedance of the transmission line.

Low pass filtering will round off the edges of a signal to reduce electro magnetic emissions.
 
Also, I think transformers are used in ethernet for common mode rejection, which basically, reduces noise.

This has to do with the twisted pairs, the noise that enters one wire of the pair will enter the other one too, except 180 degree's out of phase. When they pass through the transformer at the end of the line, the noise is cancelled out becuase it entered out of phase in one of the two wires.
 
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