Re: Security / Encryption
As Adem wrote, this is complex topic, and I'm not going to go too deep here. Just shortly: the stream is encrypted, so it is not easy (if possible at all) see the files. Easier way for attacker is to pretend to be a server and wait for you to connect to him. This way he obtains your password and can use it to connect to real server. That's why WinSCP asks you to confirm the server's public key on the first connection. Because if you unwittingly connect to attacker machine later, the key will change and WinSCP will notice it and warn you. For this work it is important that you, on the first connect, know that you really connected to the right server. For this you should know the server's finger print before the connection and compare it with what WinSCP shows yoy. (It shows it even before it sends your password or other credentials to the server).
Read Putty Documentation for more. For example chapter Verifying the host key.
Read Putty Documentation for more. For example chapter Verifying the host key.