Encryption is a way of securing data while it is being transferred. There are
several ways of encrypting data in an FTP transfer.
The most common method is by using SSL (Secure Socket Layer). SSL is a protocol
developed by Netscape in 1994 for transmitting documents securely via the Internet. SSL
uses a cryptographic system that uses two separate keys to encrypt data. There is a
public key known to everyone and a private (sometimes called the secret) key known only
to the recipient of the message. This of course is all handled by the protocol itself.
The user doesn't actually see either key (typically).
For more about each type read on:
Types of SSL
Other Methods of Encryption