The hosted service provides two levels of encryption depending not he user profile.
1. Encryption for Personal Users - Encryption is on a file by file basis. No encryption key is stored on the service.
2. Encryption for companies in which the encryption key is either stored, encrypted, on the service or reference from a third party vault service that the company sets up.
If you are a personal user and using WebDav the files will not be encrypted as WebDav does not give the facility to interact directly with the service to set an on-demand encryption password.
If you are a business user and using WebDav and have set a corporate encryption key then the files will be encrypted using WebDav as no interaction is required as the server-side key is used (or separate key server).