I did not use the encrypted backups, but I was asked to enter password when I tried to restore. Why?

You may have forgotten that you had entered a password. --> About encrypted backups on your iPhone, iPad, or iPod touch ...

Look for it in iCloud Keychain.

Did you un-check keychain while creating the encrypted password (By default it is checked) See the pic below.

If you had un-checked then the only option that you have is, keep trying various passwords as there is no limit on number of attempts.