Here is reply from SerivceNow Support team.
Password (1 Way Encrypted) Text field that stores passwords with one-way encryption. One-way encryption stores the password as a secure hash value that cannot be decrypted.
Password (1 Way Encrypted) is using either of the three types.
Password (2 Way Encrypted) Text field that stores passwords with two-way encryption. Two-way encryption stores the password as a secure encrypted value that can be decrypted programmatically within the instance. You can use Password 2 encryption with form variables. To encrypt text fields on forms, use Encryption Contexts. The length for password2 field values must be at least 255 characters.
Password (2 Way Encrypted) is using 256 AES.
Encryption key :
Key used to encrypt the data. Leave this field blank to randomly generate a key. Based on the desired type of encryption, enter the exact number of characters:
24 characters for 3-key Triple DES
16 characters for AES 128-bit
32 characters for AES 256-bit (requires system configuration)
Please check further details on setting up encryption contexts:
https://docs.servicenow.com/bundle/kingston-platform-administration/page/administer/encryption/task/...
