Device Encryption in Windows 11 works by automatically enabling BitLocker Drive Encryption on devices that meet specific hardware requirements, such as Modern Standby. When you log in with a Microsoft account, the system checks if the hardware is compatible and then activates Device Encryption. The recovery key for the encrypted data is backed up in the Microsoft cloud and can be accessed through your Microsoft account.
When you reset the TPM (Trusted Platform Module), it clears all keys associated with it. This means that any data that was encrypted using those keys will become inaccessible. Essentially, if you reset the TPM, you will lose access to any encrypted data, such as files protected by Device Encryption, as the keys that allow you to decrypt that data will be deleted. This is why it is crucial to ensure that you have backups of any important data before proceeding with a TPM reset.
Since you are on Windows 11 Home Edition and noted that it does not use BitLocker, it is important to understand that Device Encryption still provides a level of protection similar to BitLocker, but it is automatically managed by the operating system without user intervention. Therefore, losing the encrypted keys means losing access to the data protected by Device Encryption as well.