m1_encrypted was used back in the day with the old version of the emus to decrypt the sound for some of the neogeo roms. As time went on the emulators built in the ability to decrpt the sound within the emu it self and no longer needed the m1_encrypted file. Since retropie is using old emulators for PiFBA, you still need this file to decrypt the sound. The m1_encrypted file needs to be placed in your rom zip. Do a simple google search for the file + rom and you should find some further info on it.