This setting determines whether offline files are encrypted. Offline files reside on a user's hard drive, not the network, ...

"This setting determines whether offline files are encrypted.

Offline files reside on a user's hard drive, not the network, and they are stored in a local cache on the computer. Encrypting this cache enhances security on a local computer. If the cache on the local computer is not encrypted, any encrypted files cached from the network will not be encrypted on the local computer. This may pose a security risk in some environments.

If you enable this setting, all files in the Offline Files cache are encrypted.  This includes existing files as well as files added later. The cached copy on the local computer is affected, but the associated network copy is not. The user cannot unencrypt Offline Files through the user interface.

If you disable this setting, all files in the Offline Files cache are unencrypted. This includes existing files as well as files added later. The cached copy on the local computer is affected, but the associated network copy is not. The user cannot encrypt Offline Files through the user interface.

If you do not configure this setting, encryption of the Offline Files cache is controlled by the user through the user interface. The current cache state is retained, and if the cache is only partially encrypted, the operation completes so that it is fully encrypted. The cache does not return to the unencrypted state. The user must be an administrator on the local computer to encrypt or decrypt the Offline Files cache.

Note: By default, this cache is protected on NTFS partitions by ACLs."