Region encoding tries to enforce discs sold in one region may only play on players sold in the same region. It achieves two goals: 1. Prevent import of discs from cheaper countries to other countries. 2. Prevent viewing of movies from discs in regions that has not had theatrical releases (typically due to translation delays.) The goal is to line studios' and distributors' pockets.

As you may have noticed, it was broken and pretty much useless.