Before we talk about encoders lets review the Potentiometer.  A Potentiometer consist of three terminals.  Terminals 1 and 2 have a fixed resistance between them,  which is the total resistance.  Terminal 3 connects to a moving contact or wiper.  In a sense a Potentiometer is an adjustable voltage divider.  When the wiper of a linear potentiometer is moved the resistance between terminals 2 and 3 increases/decreases proportional to direction and distance of movement.  The physical design of a potentiometer is a crude and noisy way of monitoring movement.   One analogy would be when you change the volume level on your stereo you may hear the noise or static of the potentiometers wiper moving across the resistive layer of the potentiometer.  As you know, soldering two wires together produces a much better electrically clean connection than simply touching the two wires together.  This same principle applies to potentiometer.  This pour connection between the wiper and the resistive layer of the potentiometer will increase with wear or use.  Now, a designer can reduce the affects of potentiometers signal degradation by using digital filtering along with hardware noise filtering.  However, filtering can provide a sluggish feel or a reduction in movement resolution.

        Now lets talk about encoders.  First encoders produce a pair of digital signals with movement.  These data streams are sometimes referred to as Gray Code.   Most encoders  consist of a code wheel and optical receiver/transmitters.   A PC mouse is the best example of a encoder based product.
        Mechanical encoders use a code wheel and a wiper type mechanism to produce the digital output.  Mechanical encoders are more susceptible to pour signaling due to their mechanical design much like the potentiometers.  Mechanical encoders are not recommended for this reason.
        However, An optical Encoder output is produced from light being blocked or passed through slots in the encoders code wheel.   As the encoder shaft is turned the output data changes sequence with direction allowing speed and direction to be determined.   With optical encoders signal quality and movement detection is always 100% accurate.    Encoders also have a much higher wear tolerance allowing for long continuous movement, such is required in a racing Sim.  That's why we use optical encoders.