<< Does that mean all files on this machine are now encrypted? >>
Not exactly.
It means that the process of converting EVERY file on the drive has STARTED. Each and every file in turn will be read in un-encrypted, and written back out encrypted. This process will take four hours to a few days of awake but not-too-busy time. if your Mac sleeps, or you do a Restart, it will just delay the completion.
While it is doing the conversion, MOST things work in the half-encrypted state. One that does not is software update or a new Install of MacOS. Another is attempting to change the state of encryption again or say STOP. It WILL run to completion.