Hey Nick,

An encrypted signal is one where the information being passed is contingent on some other information that isn't open information. 
Imagine, for a moment that declarer opened 2H, weak 2; and were the sort of solid citizen who ALWAYS had EXACTLY 6 hearts. You make an opening lead and dummy comes down with 2 hearts.

Both you and partner know the H layout (if you have 3, partner has 2, etc). You could agree that the person with longer trumps plays natural signals (high enc) and the person with shorter trumps plays reverse signals (low enc). At the time when one of you signal something, declarer won't be able to tell if it's encouraging or discouraging; as they're not sure if it's a standard or reverse signal.

The necessary information needed to understand this signal is 'hidden' from declarer; so it's said to be encrypted.

Does this make sense?

Thanks Brad

It makes sense
But I have my doubts of the merits of the system

Suppose in your example,  dummy had hearts A x and declarer had K J x x x x plus A J T in the suit which the K was  led
RHO gives a high signal
As that must be discouraging declarer now knows the trump distribution (and there is no point in attempting a second round finesse)

Similarly encrypted length signals (which I presume are also forbidden) might be more effective?

Yea, the given example obviously isn't the most practical application; but I wanted to invent a 'simple' situation that had a clear purpose.

There are places where these would be effective, but much the same as most people haven't put thought into strong pass systems after they've been legislated away- the same is true with most people not firmly understanding the best utility of encrypted signals.