This parameter is applicable if you are working with extended (not basic ASCII) character sets. If your source data contains non-ASCII characters, using this parameter along with the encoding value ensures that the original data is preserved from the reader to the writer.
By default, the character encoding will be automatically detected from the source file if there is a Byte Order Mark (BOM) present in the source file. If you select any other character encoding, it will override the automatically detected character encoding.
Note that only UTF encodings are identified using the BOM – all other character sets must be explicitly identified or they will be read as system encoding. (System encoding is dependent on your computer's operating system locale setting.)
FME supports most encodings.