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The AWS Security Whitepaper alludes that traffic is encrypted . I'm thinking, the protection against packet sniffing at the end is a reference to encryption. But even though it says "benefits described below", "sniffing" or "sniff" is never mentioned again in the paper and If not all traffic is encrypted, what would be a way to go about encrypting certain traffic?

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Protection against sniffing may or may not allude.  But if you're not using a VPN then you need to use some method of encryption for example SSL (HTTPS) or SSH. For example, if you're connecting to a Linux-based system to copy files back and forth-SSH is a solid encrypted transport mechanism and if you are loading web content then SSL is the obvious example. FTP can be done over either the SSH or SSL. If you open up a telnet connection or HTTP to the VPC, then it  is unencrypted.

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