Your backup is fine. You can verify this by restoring one or two files; I suggest that you pick files you don't care about, delete them from you primary drive, and then try restoring from your backup. It should work fine.
The MacOS is just letting you know in case you really intended to encrypt the backup drive. If someone were to take that drive from you or access it, they might be able to retrieve your files from it. For some people this might be a concern. If you do encrypt your backup Time Machine drive, you need to make sure you remember or store the key or password. In some cases this can be stored in your keychain. But in the case of complete failure of the computer, when the backup is relied on, if your forget your encryption password you might be left in a serious bind.
Looking through these discussions, I see many more requests for help with a forgotten pass key than I see reports of stolen backup drives. That said, encrypting the backup drive is always safe as long as you have an easy to remember pass key or take other steps in case you need that key some ~ years from now.