The video below explains Microsoft's encryption very clearly. See the original article for more.
I've been very happy with Microsoft's continued focus on security. Here's a short list of some of the more recent announcements:
- Enhanced email protection with DKIM and DMARC in Office 365 - reduced spoofing and phishing through inbound sender verification.
- Garage Series: Bringing Data Loss Prevention to SharePoint and first look at new Office 365 Message Encryption Viewers - enabling DLP and mobile message encryption
- Serving 26 million Texans with secure cloud-based computing - the State of Texas finds Office 365 is secure enough for government, meeting requirements for HIPAA and CJIS standards
- Data Encryption in OneDrive for Business and SharePoint Online - TechNet article on data encryption in Office 365 on the SharePoint side.