Turning data into a form that can only be read with a special key, protecting it in transit and at rest.
Encryption turns information into unreadable code for anyone without the key. It is used in two main places: in transit, such as the connection between browser and server via SSL, and at rest, meaning the database, backups and files on disk are encrypted.
If a disk is stolen or a backup leaks, encryption makes the data useless to the attacker. It is an expected part of protecting personal data under most regulations and contracts. Passwords, by contrast, are not encrypted but transformed irreversibly through hashing.
Practical tip: encryption is only as strong as the protection of its keys. Keep keys in a secrets management service, not in code or spreadsheets, and limit who can access them. Ask your provider directly whether data and backups are encrypted at rest.