Do I want iPhone backups to be encrypted?

Encrypting your backup prevents unauthorized access to your ALL your iPhone backups and the data it contains. If someone to gets ahold of your computer, they are not able to look through your iPhone or iDevice backups, since they’ll need a password to open them.

What happens if you don’t encrypt iPhone backup?

The purpose of encrypting the backup is to prevent unauthorized access to backups, not just the particular one on the computer already. The security of encrypted backups is severely degraded if the phone can be backed up again without encryption by an unauthorized individual (i.e. someone without the password).