This article is from the Mac communications FAQ, by Bruce L Grubb BruceG6069@aol.com with numerous contributions by others.
To understand 'encoding' as the term is normally used on the Internet
one needs to understand the difference between "binary" and ASCII.
With the noted exception of text files computers store information in
"binary" format which means that all 8-bits of a byte are used. By
contrast ASCII originally only defined the first 7 bits of a byte
setting the high bit in each byte to zero. As an added complication
the character sets for byte values 128-255 used by ANSI and early
(1981-c1990) IBM PCs differed.
As a result for 8-bit information to reliably be sent between
computers it had to be translated into 7-bit ASCII text or 'encoded'.
This was especially true of Usenet and e-mail which even today mostly
supports 7-bit ASCII. Because 8-bits worth of data are being put into
a 7-bit text file encoded files are always larger than their binary
Due to its data and resource fork structure the Mac has an additional
type of encoding structure: Binary encoding. Unlike ASCII encoding
there is virturally no increase in file size but since these formats
are 8-bit they cannot be used on their own in the remaining areas of
the Internet that are not fully 8-bit (like E-mail and Usenet).