7-bit encoding is the same as Ascii encoding: both represent alphanumeric characters and symbols as numbers.
7-bit encoding is a reference to the Ascii character set — pronounced "Askey" and standing for "American Standard Code for Information Interchange" — which is a mapping of English alphabet characters, numbers and symbols to 7-bit numerical values in the range 0 to 127. The set includes all the English lowercase letters, uppercase letters, numbers from 0 to 9, and symbols such as ., !, and @.
The first 32 values, 0 through 31, are reserved for terminal control codes, such as Escape, New Line, Carriage Return, and Acknowledge.
The reason the characters are encoded as 7-bit values is because early computers handled data in bytes — blocks of 8 bits. The extra, eighth bit was originally reserved for error checking. Computers can only process numbers, so text characters need to represented by numbers too. Ascii was devised to ensure that when any machine output, say, the value 65 as text, it presented an A. Before Ascii, different computers used their own encodings, so textual information was difficult to transfer between machines from different manufacturers.
Today, SendGrid requires 7-bit encoding in our SMTPAPI categories header.
For more information on Ascii, visit Wikipedia for the entire history of the standard.