HTML encoding replaces unique characters in HTML including <, > with reserved HTML entities that are recognized using the HTML engine. The most common case of the usage of HTML encoding is when you want to display HTML unique characters as text on your HTML element content. As an example, in case you need to show < inside your div element, you want to encode (or break out) < man or woman using replacing it with <.
"Encode non-ASCII characters" option above is used if you need to encode non-ASCII characters to Unicode code factors in &#nnnn; format. If a web web page is the usage of UTF-eight-person encoding, this option is not needed. However on occasion whilst an internet page isn't always using UTF-8 but there's a need to display UTF-eight characters, this option can be used to maintain those unicode strings. Additionally while decoding, this feature can be used to decode Unicode code points back to non-ASCII characters.