from what i understand it works like this:
all the team radios are encrypted (because remember team radio isn't just between driver and pitwall, but also pitwall and garage etc) but FOM get full access to all driver communication. If anyone uses sky sports f1 race control, you'll know that a lot of pit radio is then played out (which the commentators and teams also get access to - in fact Ted mentioned it a race back that ferrari use something similar to race control for other teams pit radio). What is played on tv is a very concentrated amount of that.
I've also heard that some drivers, i seem to remember Webber mostly, always adds a swear word when using the radio so it can never be repeated by FOM for other teams to see/hear
i may be wrong, but that's what i have picked up from reading various posts over the years