What purpose is served by 'lo' in the sentence:
Siempre lo arruina todo | She always ruins everything
I'm not understanding the construction of this sentence. The 'lo' seems to be redundant.
It is redundant, but it's not wrong. It's also not compulsory to include it there. You could say, correctly:
Siempre arruina todo.
For all practical matters this means the same as with lo (see below, though, for details).
This redundant neutral pronoun is very often found in sentences with todo. It says here, especifically, that "the unstressed pronoun lo anticipates the direct complement (= object) when it is after the verb, or when it is the nominal predicate of a copulative sentence." That is, the presence of todo as the direct object causes lo to appear, and that also happens when todo is part of a copulative predicate (e.g. when the subject is followed by the verb ser or estar plus todo). For example:
Where todo is the direct object:
Where todo is part of a copulative predicate:
Though this reference text says lo must appear in these cases, for the most part that's not correct: it does appear very often, but is not compulsory. It needs to appear only in some sentences where the reference could be ambiguous, because lo... todo often means "all of it" while todo by itself means "everything". So for example:
This nuance is very subtle, though, and may not even be perceived by many native speakers.