Transform and Lighting is essentially the process of (here comes the first word) transforming the vertices of various polygons from their position in object space to their position in camera space (of course, in between there we have view and projection), and calculating the (second word) lighting for these polygons.
Essentially, T&L banks on the fact that these functions are extremely repetitive and hence make a whole lot of sense to implement in hardware, as it can be done faster and more efficiently than having it done on the CPU.
Unless the game requires a DirectX 8 Pure Device (nothing does at this point, and for sales reasons I don't expect anything to for quite a long time), it should be able to drop back to software for T&L.