I believe this powers an outlet downstairs. im trying to wire up some new can lights and need this power source. just not sure what im looking at.

Might want to add this to the Electrical Wiring category/forum....

That's not a junction box, that is a doorbell transformer. Looks to be very old-style, new ones typically mount to a junction box to place the 120v connections within an enclosed box.

The exposed line voltage connections should be protected and the ancient power line should probably be replaced.

Since you're not familiar with common wiring conditions and the existing wiring looks very old and improperly installed, you should hire an electrician to check out your house and avoid future DIY work.

As HU-xx said. Even the old transformers should be mounted to a junction box, yours looks to be levitating. Besides, the old wiring should not have the insulation cut prior to a junction box, so it is not to code anyway and a danger.

That "old junction box" falls under the category of 'Accident Waiting to Happen'.

Fire hazard.