In plain English
Encryption scrambles data so that anyone who intercepts or steals it without the key sees only meaningless characters. Modern encryption is applied at rest (files on disk and in cloud storage) and in transit (data moving across networks). Full-disk encryption on laptops — enabled by BitLocker on Windows — ensures a stolen device cannot be used to access corporate data.
Full definition
There are two places encryption matters: data at rest (stored on a device or server) and data in transit (moving across a network). Both need to be covered. A laptop with an unencrypted drive left on a train hands whoever finds it a readable copy of everything on it. BitLocker, built into Windows 10 and 11 Pro and Enterprise, encrypts the entire drive so that without the correct credentials or recovery key, the hardware is useless. encrypts data in transit between your devices and Microsoft's servers using TLS, and encrypts stored data in their datacentres by default.
Encryption does not protect against every threat. It protects against one specific scenario: someone obtaining a copy of the data without the key. If an attacker logs in with valid credentials, or if a user with access sends a file to the wrong person, encryption does not help. That is why it works alongside access controls and , not instead of them.
For Australian businesses handling under the Privacy Act 1988, encryption is one of the most direct ways to demonstrate that reasonable steps were taken to protect data. The 's guidance on the specifically references encryption as a factor in whether a breach is likely to result in serious harm. An encrypted stolen laptop generally does not need to be reported. An unencrypted one does.