Encryption, as used by package protection levels, is performed by using the Microsoft Data Protection API (DPAPI), which is part of the Cryptography API (CryptoAPI).
The package protection levels that encrypt packages by using passwords require that you provide a password also. If you change the protection level from a level that does not use a password to one that does, you will be prompted for a password.
Also, for the protection levels that use a password, Integration Services uses the Triple DES cipher algorithm with a key length of 192 bits, available in the .NET Framework Class Library (FCL).