Plain English Meaning
It is the small box that reads the airplane's altitude and feeds that number to the transponder, so controllers on the ground can see how high the aircraft is on their radar screens.
Full Definition
An encoder is a device that converts the aircraft's pressure altitude into a digital signal and sends it to the transponder, which then transmits that altitude information to air traffic control radar.
Context Anchor
Seen in aircraft equipment checks, maintenance records, and preflight discussions of the transponder and altitude-reporting system.
Derivation
From 'encode,' meaning to convert information into a coded form. The device encodes altitude as a digital signal the transponder can transmit.