A canvas is simply an ordered list of layers. When you encapsulate a group of layers, you are making a new Canvas, putting the encapsulated layers into that new canvas, removing them from the Canvas they were previously in, and replacing them with a new Paste Canvas layer, called 'Inline Canvas'. The new Paste Canvas layer has a parameter called "Canvas" which has the new Canvas as its value.
Canvases can be exported, which adds them to the Canvases Dialog, from where they can be edited separately in their own workarea.
Sub-canvases can in turn be exported from these new workareas, building up a tree of canvases.