Is masking of passwords when entering into the Password box defined as encryption?

Answer 1

No. Encryption means actually transmuting the information into some other format that must be "decrypted". Simple masking is not encryption. It's just a way to enter password without seeing it. It's an UI issue, not encryption.

Answer 2

How Encryption Works
http://computer.howstuffworks.com/encryption.htm

Encryption at Wikipedia
http://en.wikipedia.org/wiki/Encryption
In cryptography, encryption is the process of transforming information (referred to as plaintext) to make it unreadable to anyone except those possessing special knowledge, usually referred to as a key. The result of the process is encrypted information (in cryptography, referred to as ciphertext). In many contexts, the word encryption also implicitly refers to the reverse process, decryption (e.g. "software for encryption" can typically also perform decryption), to make the encrypted information readable again (i.e. to make it unencrypted).

Encryption has long been used by militaries and governments to facilitate secret communication. Encryption is now used in protecting information within many kinds of civilian systems, such as computers, networks (e.g. the Internet e-commerce), mobile telephones, and bank automatic teller machines. Encryption is also used in digital rights management to restrict the use of copyrighted material and in software copy protection to protect against reverse engineering and software piracy.

Encryption, by itself, can protect the confidentiality of messages, but other techniques are still needed to verify the integrity and authenticity of a message; for example, a message authentication code (MAC) or digital signatures. Standards and cryptographic software and hardware to perform encryption are widely available, but successfully using encryption to ensure security is a challenging problem. A single slip-up in system design or execution can allow successful attacks. Sometimes an adversary can obtain unencrypted information without directly undoing the encryption.