The Encounter deck is officially known as the Location deck.
Each of the neighborhoods on the main Arkham Horror map and on each expansion map will have a small deck of location cards. The color on the backs of each card will match the color of the neighborhood on the board, and the card back will show the artwork from each location in that neighborhood. On each card, an encounter is written for each of the locations in that neighborhood. Hence, these decks of location cards are sometimes referred to as Encounter decks.
During the third phase of the game - Arkham Encounters - the player will draw one of these cards if the location of his investigator does not have a gate, or if there is no gate and he does not choose to perform a special encounter if there is one. The player will read his location's entry aloud, and perform any actions indicated by the card text. Some encounters may indicate that “a monster appears,” in which case the investigator must either evade the monster or fight it. Once the player has resolved any actions indicated by the card, he returns it to the location deck.
While the rule book instructs the player to shuffle the location deck before drawing a card, a common house rule is to simply draw from the top of the deck and return each used card to the bottom.