Data files are often encrypted/encoded to prevent data being read and/or edited and is a common way of ensuring data is secure. Encoded data (also called cipher text) starts as plain-text data which is then encrypted using a mathematical encryption algorithm based on a password (key), which is then required to decrypt the data back to plain-text.
Initially, encryption was mainly used by military and governments but is now extremely common in modern computing and a significant amount of data sent across the internet is encoded in some way (passwords and payment information for example).
There are two main types of encryption, the first is called 'asymmetric encryption' which uses one password (key) to encrypt the data and another to decrypt. 'Symmetric encryption' uses the same password to encrypt and decrypt data.