Dropbox is just a regular directory on disk. There is no magic. There just happens to be a process watching that directory for changes. (or not. you can always kill the dropbox process, and your files are still accessible)

Of course most users don't encrypt their local file systems in the first place, so whether dropbox has something for local security is irrelevant.

For people interested in securing files on disk the same solutions you would use without dropbox are the same ones you can use with dropbox. In a nutshell, either encrypt your whole volume or mount a file-based volume.

Personally I use a Truecrypt volume, and I placed my drop box folder inside it. I do this so I can still access all the files from the web and mobile and have the versioning. Alternatively you could place the volume's data file itself in the dropbox folder to be synced. You would of course lose the per file granularity, but you do get a "snapshot" feature since you can restore your whole volume with the versioning.

Keep in mind that if you place a trucecrypt volume inside drop box, then it will only get synced when it is unmounted.