TACACS does not encrypted telnet sessions between user and device.
TACACS provides Authentication, Authorization and Accounting services. For example, if a user try to telnet to a router, router will send user's credentials to the Tacacs server(in encrypted format) to check whether user is allowed to login to the router or not. If allowed by TACACS server, the telnet attempt will be successful. After that all communication between user and router will be in clear text format as Telnet is a clear text protocol.
After implementating TACACS you should be able to use SSH to encrypt traffic between user and devices. Here is a useful link;
http://www.cisco.com/en/US/products/sw/iosswrel/ps1834/products_feature_guide09186a008007fed9.html
