This parameter is applicable only if you are working with foreign (non-English) character sets.
For example, if your source data contains foreign characters, using this parameter along with the encoding value ensures that the original data is preserved from the reader to the writer.
If the value is not set, the character encoding will be automatically detected from the source file. If the value is set, it will take precedence over the automatically detected character encoding.
FME supports most encodings.