Data encapsulation is the process of adding information to data you're attempting to send. This information is different at each layer of the OSI model. Each layer adds its own information that is pertinent to that layer. For example when a user generates data it travels down the OSI model, when it gets to the transport layer, let's assume this is TCP traffic, the router will add the TCP header which contains port numbers, sequence number, etc. Once the TCP header is on the data it is considered a segment.
Once the router has added the layer 4 header it will move down to layer 3. At this layer IP will add its header information including IP addressing. Once the IP header is attached to the segment it becomes a packet. The packet then travels to the data link layer where MAC addressing is added and becomes a frame. The frame then goes to the physical layer which converts the frame to bits and sends it out onto the physical link.
This process is the process of encapsulation. When the destination receives its traffic it will go through this process in opposite order. It will strip away each header and read the information which tells the router all the important information about the source of the data. It is important to know how information is encapsulated at each layer. When someone refers to a packet you should know they are referring to a piece of data encapsulated at layer 3.