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I am setting up transactional replication for the first time and am working through my backup policies I need to set.
Is my Publisher database my actual source database? Or is it a new database that gets created when I create the new publication?
I know our production database is currently backed up regularly, Im not sure if I also need to back up the 'Publication` as well once it is created?
Yes, your publication database is your source database.
There are some considerations when backing up the publication database, as well as other replicated databases, such as the distribution and subscription databases. This is covered in Strategies for Backing Up and Restoring Snapshot and Transactional Replication.
The "source" database is being referred to when the "publisher" database is discussed. Take a look at the below diagram from this reference, it shows it pretty well:
