When you connect a modern Android to a PC by USB it becomes a MTP device (rather than doing USB storage). Effectively, the device's operating system has a "Hello computer, I'm a digital-camera-like-thing, and I've got these files... Oh, you want that one, sure, here it comes... What would you like me to do next? Write some files to the ringtones directory? Sure, send them over." sort of conversation, rather than blindly relinquishing control of the SD card itself to the host PC. Encryption (and the ext filesystem) is handled by the Android OS at a lower level in the usual way, so the PC doesn't have to care about it.
It's fine for things like transferring photos, and has the overwhelming advantage that Android maintains access to the contents of the card during the process (vital if the card is adopted into the main filesystem).
There's usually an alternative to adopting the card, which allows you to keep it with a FAT32 filesystem for storing media. Then you can pull it out and stick it in a card reader in the normal way. The disadvantage is that a) Android will only then let you use it for storing files which won't break anything if they disappear, rather than allowing you to move apps to it. and b) There's necessarily a new security hoop to jump through to allow apps permission to read/write an un-adopted SDcard, which some older apps don't support.
It's all perfectly reasonable, but backwards compatibility has turned it into a bit of a mess, in the classic Microsoft style.
