Encrypted fields are encrypted with 128-bit master keys and use the Advanced Encryption Standard (AES) algorithm. You can archive, delete, and import your master encryption key. To enable master encryption key management, contact Salesforce.
Encrypted Custom Fields are a new field type (released after winter 08) that allows users to store sensitive data in encrypted form and apply a mask when the data is displayed (e.g., Credit Card Number: XXX-XXX-XX-1234).