The Transform PP restore glitch is a natural glitch in Pokémon Red and Blue. Using an item to restore PP in battle will apply the PP values on moves as if they were the moves before Transform, rather than the moves after Transform.
Summary
After the user's Pokémon uses Transform, it copies the opponents attacks with the PP of every move set to 5.If the player uses an item to restore PP, the game assumes that the user's Pokémon still has its original attacks (this can be seen when using an Ether or Max Ether, where the game will bring up a menu with the Pokémon's attacks before it used Transform).
After using the item, the game sets the move(s) to the maximum PP of the original attack(s) rather than the opponent's attack.
For example, Ditto can only learn Transform. If Transform has 10 PP and Ditto transformed into a Pokémon with 4 attacks, using a Max Elixer will set the first move's PP to 10 (even if the new attack has more PP) and the PP of attacks 2-4 to 0.
This glitch was fixed in Pokémon Yellow. Trying to use an Ether or Elixer in battle on Pokémon Yellow brings up Professor Oak's message that "it isn't the time to use that".