Most of the time stuff like that is handled with php. For example vBulletin hashes user passwords with md5 and a salt, the plain text version is never stored in the database itself.
When a user logs in the password they submit is hashed the same way, and checked against the one in the database. If they match then the user has inserted the correct password and is logged in, otherwise they are given an incorrect password error.
This is not the same as encryption, but can serve the same purpose. The difference is encrypted data can be unencrypted, while hashed data can only be matched against other hashed data to find matches.
Hope that helps.
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