What is XML Encryption?

"XML Encryption" encompasses the encryption of any kind of data, including the encryption of XML [XMLENC]. What makes it XML Encryption is that an XML element (either an EncryptedData or EncryptedKey element) contains or refers to the cipher text, keying information, and algorithms.

Why Another Encryption Syntax?
As with XMLDSIG, the motivation for a new XML syntax, instead of using existing binary and text syntaxes, was the desire to have encryption information and cipher text as structures that could be created, manipulated, and analyzed with XML tools. You can conveniently encrypt parts of XML documents, thereby smoothly integrating them in XML-based Web services. In addition, you can easily use XML pointers into the structure, make assertions about it, and have it point into other XML structures. Even just displaying and looking at a structure normally in the XML world becomes much easier if the structure is XML.

By the time the XML Encryption effort got rolling, the KeyInfo element existed and a syntax for algorithms had been specified in connection with XMLDSIG. Thus a few of the steps needed to develop XML Encryption had already been taken.

Encryption Granularity
You can use XML Encryption for encrypting arbitrary data. When using it to encrypt XML in place, however, this standard is limited to encrypting an entire element or the entire content of an element. The resulting EncryptedData element then replaces the encrypted element or the encrypted content.

Source: Secure XML, The New Syntax for Signatures and Encryption, Donald E. Eastlake, Kitty Niles 2002