How the encryption works?

Also, can you explain how the encryption works?

You are referring to Encrypted Forms? Enabling Encryption setting on your form will make your form submissions encrypted before they are submitted/saved to JotForm servers. You will be given a Private Key that will be used to decrypt the submission data. Please note that you are the only one holding the private key so try not to delete the private key for your form. Once encryption is enabled, nobody except you can access your data. Notifications will alert you when an encrypted response is received, and you can use your private key to read them. 

For more information, you can check this article: Encrypted Forms and How to Use Them.