With Lion Apple changed this concept from a user folder encryption to whole harddrive encryption, and they did an awesome job.
You can basically enable and disable the encryption at any time and the os will perform the encryption/decryption in the background allowing you to continue your work.
With enabled file encryption the user login will appear actually before the os boots ensuring only authenticated user's can access the harddisk files. You also get a backup key in case you need to access the harddisk from another os or you accidentally delete all user's. If you have a mobile.me account you can also backup your key online.
Once finished the system works fully transparent and you wont even notice that you are working on a encrypted drive besides the biggest problems with harddisk encryption: The Performance.
Apple did amazingly work here, without encryption Lion performs much better then Snowleopard and even with activated encryption you probably won't notice a big performance drop at all.
As you see the only real impact on performance with enabled encryption happens on writing data but its nowhere near the slowdowns you would experience with TrueCrypt or BitLocker. Reading data is amazingly a lot faster then with Snowleo even on an encrypted filesystem.
Apple did a good job revamping FileVault into a full blown harddisk encryption with great performance and easy handling.