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Encfs is a fuse utility that allow you to simply create an encrypted directory and use it as a standard directory.
I propose to add support in Dolphin to manage mounting and unmounting of directories encrypted with encfs.

I also found an old post on how to change directory icon to show if the folder is mounted or not: viewtopic.php?f=14&t=97199&hilit=encrypted

Yes, one of the needed features for Dolphin and every KDE application is to support encryptions well.

Was it a PGP encrypted partition, file or then encfs etc...

It should be as easy than just opening a directory/file and giving a password and when stopping, right clicking and selecting "close/secure"

Being fuse VFS encfs can be supported automatically if KDE will be better integrated with fuse. I've already suggested it some time ago:
viewtopic.php?f=83&t=110992&p=263926&hilit=fuse those who are interrested in encfs support in KDE (or any other fuse based VFS) can also vote on my post.