In order to encrypt files and folders just right-click on the file or folder and select properties . Click the advanced button and then chech the encrypt files to secure data chech box . Encrypted files will usually be green in colour .When encrypted the user who is currently logged on can only view the files and other usera will not be able to open this files . When opened by other users it will result in an error.
Also see How to have a hishly secured shared system with other users.