Encryption essentially involves taking data and subjecting it to mathematical algorithms that include a key making it unreadable to anyone else who does not know what that key is. The encrypted form of the data is know as cyphertext. Wireless networks use what is know as symmetrical encryption whereby the same key is used at both ends of the nework connection. For example, the encryption key is used as part of the mathematical equation on the sending system to encrypt the data. The receiving system then uses the same key to decrypt the data when it receives it. This key is specified by you when you configure the encryption for your wireless network and should be known only to you. The chances of a hacker guessing your encryption key are very remote and while it is possible to break the encryption code with enough time and computing power it is unlikely this kind of effort will be expended on your network. You can specify different lengths of key for the encryption process - the longer the key the stronger the encryption and the more secure the network.
WiFi wireless networks use a security standard known as Wired Equivalent Privacy (WEP). The aim of WEP is to provide a level of security in a wireless network environment that is equivalent to the security of a wired network. In practice it falls short of this goal but for most purposes it provides an adequate level of protection.
Wireless encryption can be configured as either 64-bit or 128-bit. This refers to the length of the key that is used in the encryption algorithm and these relate directly to the strength of the encryption (128-bit encryption being stronger than 64-bit encryption). Using stronger encryption can impact the performance of the network because more time has to be spent encrypting and decrypting the data at each end of the communication. In practice it is unlikely the typical user would notice a significant difference and the strongest encryption (128-bit) is always recommended.
The encryption key are specified in hexadecimal. Unlike decimal which uses a number base of 10 (i.e digits between 0 - 9) hexadecimal uses a base of 16 (i.e digits between 0 - 9 and A - F). 64-bit encryption requires that you provide a 10 digit key whilst 128-bit encryption requires that you provide a 26 digit key.