When in doubt, always choose the enhanced security mode. This is the most secure mode and ensures any sensitive data is confined to the original data source and, when applicable, the local machine on which the model was created. To do so, make sure the "Encode data" switch and the "Enable enhanced security mode" switch are turned on when creating your model.
If you need to share you model with other users you will need to disable the enhanced security mode. If you need to integrate your model with other APIs that cannot access your encoding keys you will need to disable encoding.
These settings only affect encryption at rest. In all cases data is always encrypted in transit.