It had to do with screwing around with the vertical blanking interval. TV's had no issue with it, but VCR's would fail.
Cable TV "scrambling" was similar back in the day as well. It wasn't so much that the signal was "encrypted" as it was "modified" in such a way it wouldn't play on a normal tv anymore. Over time they could modify the scrambling technique so that any box you did buy to descramble a signal would be worthless in a few months when they changed the method.
The only way to really descramble Pay TV was to be an electronics guy who could reconstruct the video signal. Usually you needed the minimum of an oscilloscope to analyze the timing signals, and then the ability to create a circuit to fix it -- it wasn't exactly easy.