Encrypted password is stored in database so even if site is compromised and somebody gets hold of all passwords, they are useless.
When user logs in, his username is catenated with clear text password, result is encrypted and then checked against db password.

users in db:
aaa aaaa anders billy bob buffy curtis dan demo den dras dsdsd duck edw666 edw777 edward edward6725 eeee eng fsdf ftu harm jjj john kobrien luis mlc ms poo popol robyork rock rocky scott snyderdk sss test testa teste tttt will www xzx yjmujmum yoyo zzz