The encryption in Telegram is encryption of the “message” traffic Telegram generates. It is not about how data is stored on your phone. Intercepted internettraffic can contain Telegram messages, but Telegram states that it is not possible to crack the captured data-stream to see what messages are sent, making Telegram a valuable messenger for anyone who has something to hide and is afraid that his or her network traffic is intercepted.
Telegram is even  inviting hackers and security experts to find ways of decrypting Telegram traffic and added  $200.000 in BitCoins price for the first who cracks intercepted data.
You can even check if you “encryption key” is exactly the same as the one you are messaging to, by comparing the pattern. They must be the same on your phone and the phone of the other person you are messaging to.