Data encryption systems (typically) do not directly encrypt the data with the password. The problem with doing this is that when the password is changed, all the data needs to be re-encrypted, which is a very intensive process. (It also prevents supporting multiple passwords.) Instead, a random key is generated when the system is initialised, and the data is encrypted with this random key. The random key is then encrypted with the password and stored on disk. To decrypt the data the password is first used to decrypt the random key, and then the random key is used to decrypt the data. Changing the password simply involves re-encrypting this random key, and not all the data.
The encfs manpage mentions:
The user must supply a password which is used to (indirectly) encrypt both filenames and file contents.
which implies that it uses this scheme.