SQL Server 2005 and newer offers the option to encrypt your tables/databases.  If you were to back up a SQL Server 2008 database that contains encrypted data, your backup data is pretty much encrypted.  However, if you tried to back up the data using the COMPRESSION option in SQL Server 2008, the backup data won't be compressed much.  This is because encrypted data simply does not compress well.

What if you wanted to protect the backup data for a database that's unencrypted?  Well, you have the PASSWORD option, but all that does is prevent you from restoring the database if you do not have the right password.  It does nothing to encrypt the backup data itself.

E.g. here's a normal backup:

BACKUP DATABASE pubs TO DISK = 'e:\temp\pubs.bak'

and here's a hex dump of the backup file at offset 120D00H:

Here's a password protected backup:

BACKUP DATABASE pubs TO DISK = 'e:\temp\pubs.bak' WITH PASSWORD = 'password'

and here's the hext dump of the backup file at the same offset:

All the PASSWORD option does is require you to enter the password when performing RESTORE operations.  No encryption of the backup data is performed.

With SQL Backup, you can encrypt the backup data.  Since encryption is performed after the compression process, you get the benefits of both compression and encryption.  The syntax couldn't be simpler either e.g.

EXEC master..sqlbackup '-sql "BACKUP DATABASE pubs TO DISK = [e:\temp\pubs.sqb] WITH PASSWORD = [password]" '

Encryption is performed using the AES (Rjindael) encryption algorithm, and you can choose between 128-bit and 256-bit key sizes.