Encryption secures sensitive data by transforming it into a format that is unreadable without decryption keys. This process involves algorithms that encode information, making it inaccessible to unauthorized users. For instance, when data is transmitted over the internet, encryption helps protect it against interception by encrypting files and communications. Common encryption standards include AES and RSA. By ensuring data privacy and security, encryption is crucial for businesses handling personal information, sensitive data, or financial transactions, thus making compliance with regulations mandatory.