Router wifi password encryption types and why do they matter?

up until now i've just been blindly following articles etc. to set my router's wifi password encryption type to WPA2-PSK/AES, but what does it really mean for me? does this just make it harder for people to hack my password with whatever algorithms they're using? say for example, if my password is Blink281, what does changing the encryption type to say WPA-PSK really do?

not a really tech savvy guy:(

thanks