The following section copied from the Developers Guide which explain the difference between Flexalock and Encoded Applets:
Flexalock Applets can be partially or fully encrypted. Flexalock Applets are useful when you wish to lock down part of an Applet’s source code, leaving key constants exposed that others can modify as required. In addition, Formativ Studio and Creator can be used to modify a Flexalock Applet’s client integrations and convert an open source Applet to a Flexalock Applet. To ensure maximum security and end-user flexibility, Applets written for commercial distribution should be converted to the Flexalock format.
Encoded Applets are fully encrypted. The source code and client integrations are completely locked down and cannot be modified by anyone except the developer who has access to the original open source Applet. Formativ Studio and Formativ Creator can convert an open source Applet to an Encoded Applet. Due to the introduction of the more flexible Flexalock Applet format, the Encoded Applet format is now used rarely.
Hope this helps.