Encoding is the process by which video files are compressed and decompressed thus making them economical to store and easier (smoother) to transmit without eating up too much bandwidth.
Raw video files are generally huge, making their transmission and storage quite expensive. Video files are compressed using what is known as a video codec (short for coder/decoder) to encode the video data while sending, into a much smaller format for smoother transmission to its destination or into a much smaller file size for storage. The corresponding decoder at the receiving device or browser-based video player the reverses the encoding (decodes it) for smoother playback.
The encoding function is performed by the software or hardware being used to transmit the stream, while the decoding function is performed at the Player end (in the browser) which receives the compressed stream.
One of the more common (and efficient) codecs in use today is H264, with the newer H265 now emerging on the horizon.
This process allows viewers to watch (and/or store) large video files without interruption in the stream and makes Live Streaming Video more functionally acceptable to viewers.