Will encryption encrypt my "internal sdcard" (personal data)? First, a note. This question stems from the big confusion that are terms like internal storage, internal sdcard -- at least to me -- and the fact that factory reset, which claims to "erase all data from your phone's internal storage, including [...] music, photos", doesn't touch my personal data (data in the internal sdcard, like camera media and WhatsApp conversations) at all. I don't use removable SD cards, by the way.

When I say internal sdcard, I refer to /sdcard or /data/media/0, which are equivalent in my Samsung I9300 Galaxy SIII running CM11 nightly (KitKat).

Okay, the question: will encrypting actually encrypt the entire internal storage including internal sdcard and all the rest (entire root filesystem) or will it encrypt only the data which would be affected by a factory reset (which seems to me to be only the /data/data directory)?
Short answer: no, the emulated SDcard storage is not encrypted.

I believe I am in a similar situation as you. I have a HTC One S4 ("Ville") here which also lacks an SD card socket extension, so the phone is partitionned in a way to make it look to Android that there is an actual sdcard in there. It is mounted in /sdcard and there's a separate /data partition that holds the usual private data (contacts, sms, etc).

Following the Encrypt phone procedure from Cyanogenmod 12.1, only /data is encrypted but /sdcard is accessible without a password! That is, to say the least, a little disappointing. I am not sure it is absolutely inevitable: I suspect that the internal sdcard wasn't encrypted because it was formatted as FAT.

I was able to reformat the filesystem as EXT4 by mounting it on my laptop and re-formatting, at least. Unfortunately, vdc cryptfs enablecrypto inplace found that the phone was already encrypted and didn't attempt to encrypt the SD card. I am still at a loss as to how to encrypt that part of the phone and so have resolved to avoid storing too sensitive data on that partition.