Tor hides your location from destination servers, but it does not encrypt <i>all</i> your communication. The last relay of a Tor circuit, called the <i>exit node</i>, establishes the actual connection to the destination server. This last step can be unencrypted, for example, if you connect to a website using HTTP instead of HTTPS.
To learn more about what information is available to someone observing the different parts of a Tor circuit, see the interactive graphics at <a href="https://support.torproject.org/https/https-1/">Tor FAQ: Can exit nodes eavesdrop on communications?</a>.
Tor exit nodes have been used in the past to collect sensitive information from unencrypted connections. Malicious exit nodes are regularly identified and removed from the Tor network. For an example, see <a href="https://arstechnica.com/information-technology/2007/09/security-expert-used-tor-to-collect-government-e-mail-passwords/">Ars Technica: Security expert used Tor to collect government e-mail passwords</a>.