Serialization

• Serialization allows the programmer to take an instance of an object and convert it into a format that is easily transmittable over the network or even stored in a database or file system. This object will actually be an instance of a custom type, including any properties or fields you may have set.
• Serialization deals with converting objects into streams same as marshaling. Mostly it relates with objects while transferring over network.
• The process to convert object graphs to and from XML Infosets.
• Serialization happens higher up in the Service Model layer.

Encoding

• Encoding relates with security aspects data security converts data into an encoded format which can't be understood to any one except the decoder.
• Encoders convert XML Infosets to/from byte arrays.
• Encoding happens way down in the transport layer close to the wire.

For more information for encoding http://en.wikipedia.org/wiki/Encoding