Encryption in RFID comes in two flavours, one involves securing the data held on the tag, and the second is securing the trasmission of that data.
Securing tag data is essentially the same as the encryption methods used to secure digital data in other areas of computing. Plain text held on the tag is turned into a cipher using a specific algorithm and it is deciphered back into plain text using the same algorithm by the software supporting the reader. Adding encryption to the tag adds overheads in both the time it takes to process the information and memory required to store the information.
Securing the transmission is a little more of an obtuse definition of encryption. Radio is not the most secure transmission medium around. An RFID tag can essentially be interrogated by any reader broadcasting on its frequency. To get around this you can employ methods which force the tag to respond only if a specific code is transmitted to them. Adding this sort of functionality to a tag increases the processing requirements of them, thus increasing their cost. Securing the transmission also increases the time it takes to read tag data.
Generally most RFID implementations do not employ encryption. RFID tags need to be cheaply mass produced and readable in the thousands. The additional cost in time and money to add encryption is often not worth it. It is often not required either. Most RFID tags only contain a string of alphanumeric characters only relevant to the supporting software, so intercepting and reading their information is pointless. 