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Encryption is the process of transforming information in such a way that an unauthorized third party cannot read it; a trusted person can decrypt data and access it in its original form though. There are a lot of popular encryption/decryption methods, but the key to security is not a proprietary algorithm.
The Store password using reversible encryption policy setting provides support for applications that use protocols that require the user's password for authentication. Storing encrypted passwords in a way that is reversible means that the encrypted passwords can be decrypted. A knowledgeable attacker who is able to break this encryption can then log on to network resources by using the compromised account. For this reason, never enable Store password using reversible encryption for all users in the domain unless application requirements outweigh the need to protect password information.