Without getting technical, encryption software works by taking your chosen files, programs, folders, drives, etc., and scrambling the data into a big mess using an algorithmic key. To anyone without the key, the data is meaningless and virtually impossible to put back together.
It is not just password protected but hidden behind an extremely complex digitized riddle.
But, to you, with the key (in this context usually a password), you can decrypt the data and revert it back to its usual state.
Most encryption software uses a simple interface that lets you select what you want to encrypt, choose a strong password, and then all the hard work is done for you. Your job is to remember that password.
Alternatively, the password may come in the form of a key, a much longer string of data that might be stored as a file on an external pen drive, for example. Unless you know exactly what this is for it too is useless to most people.
As well as files and folders, there is also full disk encryption and encoding of your operating system when it’s not booted.