SFTP protocol specification requires that client and server uses UTF-8 encoding (Unicode) for file names.
With the latest release, WinSCP by default uses UTF-8 encoding. You can force non-default behaviour using session option UTF-8 encoding for filenames, particularly when your server does not use UTF-8.
With previous releases, WinSCP by default expects that the local machine and the server uses the same encoding (no conversion is done) for SFTP-3 and lower1), and uses UTF-8 encoding for newer versions. You can force non-default behaviour using session option UTF-8 encoding for filenames. This is useful especially for servers that use UTF-8 natively, thus even for older versions of SFTP.
Please be aware that if your server does not support UTF-8 encoding, but uses its local legacy encoding instead, it is its fault. The problem is not on WinSCP side. You should push your server provider to add support for UTF-8, and not ask for support of legacy encoding in WinSCP.
For SCP protocol filename encoding conversion is not supported at all.
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