Encryption, is the process of changing information in such a way as to make it unreadable by anyone except those possessing special knowledge (usually referred to as a "key") that allows them to change the information back to its original, readable form.
Encryption is important because it allows you to securely protect data that you don't want anyone else to have access to. Businesses use it to protect corporate secrets, governments use it to secure classified information, and many individuals use it to protect personal information to guard against things like identity theft.
Espionage uses encryption to securely protect folder contents, which could contain emails, chat histories, tax information, credit card numbers, or any other sensitive information. This way, even if your comptuer is stolen that data is safe.