Auto-Shrink, Encryption & Recovery Model properties in SQL Server 2008 R2
The simple recovery model means that you don't have the option of point in time recovery - essentially, if you take a full backup of the database each day, any data you enter after the backup might be lost if there was a problem. You'd restore to how the data was in the last good backup. As long as your data doesn't change that much between full backups, this is the simplest solution.

Full recovery means you also need to take regular transaction log backups as well - it allows you to restore to a point in time if there is a problem. Typically, you might take a daily full backup of the databases, and transaction log backups every hour. The problem is that if the transaction log backups fail, the transaction logs themselves will grow - and fill the discs if it's not fixed.

Auto-shrink is a setting where SQL Server will trying to shrink the database files when it is idle. It causes performance havoc, and will be removed in a future SQL Server release. Don't use it! (gbn added bold!)

Encryption is a bit more complicated, and best left alone unless you really understand all that is involved IMHO.