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I am trying to use a newly created APFS encrypted case sensitive APFS partition with Time Machine backups. If I do not check the box encrypt backups, it prompts for the password to turn off encryption.

Does that mean the contents on the disk will no longer be encrypted on APFS encrypted partition?

I do not get it.

How is it able to store data unencrypted on an encrypted APFS partition, or turn it off for that matter.

Will that data be accessible without the password setup already for the encrypted APFS partition?

If I check the box encrypt backups, Time Machine will reformat the partition into an extended journaled partition. So no APFS encrypted partition.

Can someone shed some light on this ?

I mean, how can my encrypted partition suddenly be turned off or is encrypt backups checkbox not needed on backups to an already encrypted APFS partion?

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Time Machine cannot backup to an APFS disk, because APFS doesn't support hard-linking, which is essential to Time Machine's operation.

From Apple KB - Types of disks you can use with Time Machine on Mac

Important: You can back up from an HFS+ or APFS-formatted disk to an HFS+ disk; however, Time Machine can’t back up to an APFS-formatted disk. If you select a back up disk formatted as APFS, Time Machine offers to reformat it as HFS+.

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