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When set that attribute to "Yes" item value is encrypt when it is stored to APEX session state.
Admin or developer can not see users plain value when query e.g. APEX views.
Session state that is sensitive can be encrypted when stored in Application Express session state management tables. To maintain session state encrypted for this item set the value to Yes. Values up to 4000 bytes in length can be encrypted. Attempts to encrypt values longer than 4000 bytes will produce an error message.
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Here's a practical example...
Let's say you have an application that stores PII (Personally Identifiable Information). You don't want developers and/or DBAs to see that information by querying the session state tables underneath APEX, so you enable Session State Encryption.
You could also use Data Vault to then protect that information when it goes into your application tables (not the APEX tables, your tables).