Encryption is the process of using an algorithm called a cipher to scramble the data in such a way that it would be very inconvenient to unscramble. Encryption algorithms use keys (essentially a password) to uniquely encrypt data. This key is needed to decrypt the data.
Encryption software is used by a computer in two different ways. Firstly many operating systems use "full disk encryption" to protect their users files, this prevents an attacker with local access gaining access to the files on the computer. Encryption software is also used to encrypt data in transit, for example: a web browser will use encryption software to encrypt web requests before they are sent across the internet to a web server.