Data Encapsulation is the process data flows through which the data in each layer of the OSI Model is wrapped (or encapsulated) in protocol information of the layer. Each layer of the OSI Model is readable only by the same layer on the receiving host (i.e., Session-Session, Transport-Transport, Network-Network, etc.) However, each layer the data must go through before transmission must receive and understandable header and protocol data to continue on its journey. It is relatively simple to understand once you gain an understanding of what is happening.
Each layer communicates with its neighbor layer on the destination. Each layer uses Protocol Data Units (PDUs) to communicate and exchange information. Protocol Data Units contain the control information attached to the data at each layer. The information is attached to the data field’s header but can also be at the end of the data field or trailer.
Each protocol creates a protocol data unit (PDU) for transmission that includes headers required by that protocol and data to be transmitted. This data becomes the service data unit (SDU) of the next layer below it. This diagram shows a layer 7 PDU consisting of a layer 7 header (“L7H”) and application data. When this is passed to layer 6, it becomes a layer 6 SDU. The layer 6 protocol prepends to it a layer 6 header (“L6H”) to create a layer 6 PDU, which is passed to layer 5. The encapsulation process continues all the way down to layer 2, which creates a layer 2 PDU—in this case shown with both a header and footer—that is converted to bits and sent at layer 1. [Layers 7=Application, 6=Presentation, 5=Session, 4=Transport, 3=Network, 2=Data Link, and 1=Physical]
Here is an excellent video related to data encapsulation, for those of you who (like me) are visual by nature. https://www.youtube.com/watch?feature=player_embedded&v=3se8JizBmPg
These are the basics and this was down and dirty. I hope it is both helpful and useful to you.
Lammle, T. (2007). CCNA Cisco Certified Network Associate Study Guide. Indianapolis: Wiley Publishing, Inc.