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What is Encrypted vs. Unencrypted Phone in Android Devices?

Inside the Android security preferences there will be an option to "encrypt device" and "encrypt SD card" which uses AES-128. You will create a password and an encryption key will be created. Every time you power on, or unlock the phone to use it, it will ask for the password. This protects your data from being read by someone else, in the case of a lost phone for example. Even connecting to a computer will not help as the data will be scrambled.

SD encryption is similar, except it effectively locks that SD card to your phone only. You'd need to connect your phone with SD card to a computer, and then enter the password on the phone in order for a computer to read the SD card. Warning: If you forget your password, you can pretty much consider the data gone. Look into passphrases instead.

Unencrypted devices can be read by anyone that has the device, regardless if they know your lock code or not.
Some newer Androids come encrypted by default. Not sure which models, but I think some started after 5.0.

Detailed info: https://source.android.com/security/encryption/
 
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