Ok, I know this may sound really strange but I don't exact understand it. Can an "encounter" just be combat, or also a skill check? For example if I have a conversation with a NPC and I need several Diplomacy rolls, is it an encounter? Does a simple "perception check" count as an encounter?
Also, would "walking down the street" be considered an encounter? What about "searching the room for evidence"?
This is defined in Pathfinder's Glossary:
Encounter
An encounter is a short scene in which the PCs are actively doing something. Examples of encounters include a combat with a monster, a social interaction significant to the adventure’s plot, an attempt to disarm a trap, or the discovery of a mystery or clue requiring further investigation.
Emphasis mine. An encounter is a scene. It is something that we focus on as part of the role-playing experience.
"Walking down the street" is an encounter if it is an event relative to the narrative. Usually it isn't. If something so interesting happens when walking down the street that we spend metaphorical "screen time" on it, it's an encounter.
Further, Pathfinder uses, but does not as far as I can tell define, the terms "combat encounter" and "roleplaying encounter". Obviously these inherit the ambiguity.
The definitions are, I believe, left this vague for the benefit of GMs. Certainly, this is how it has been handled at every table I've been at - a combat encounter begins whenever the GM tells us to roll for initiative. It ends when the action has died down to the point we no longer care precisely in what order things are happening. If we later need to determine whether we're in a new encounter but aren't sure, we again ask the DM and he or she just decides.
In the end, don't worry about not having the precise game-logic definition of an encounter nailed down. One doesn't exist, and probably isn't intended to.
An encounter in its simplest terms is anything that could either pass or fail with possible shades of grey in between. It is generally made up of multiple parts (not just one skill check or one hit to an enemy) that are all linked within a timeframe.
Basically anytime you could say "Remember that time when..." and can talk for more than a minute, it could count as an encounter.
An encounter is a situation. It might be a meeting with the king, a combat against some enemies, a room with a puzzle to solve. Generally, when you as a group start doing a different thing one encounter is over and the next one has started.
Usually, encounters are separated from each other by some rest, idling, doing mundane, unopposed activities.
It is worth noting, however, that Pathfinder, unlike D&D 4e doesn't have a mechanical impact of "an encounter" as a general rule.
(i.e. in 4e your players will have "encounter powers" and will care about "milestones" to recover Action Points - neither apply to Pathfinder)
What does matter more for many Pathfinder games, especially as you get to higher levels, is to keep a general sense of how much time is passing. As characters cast long duration buffs this can matter a great deal - and as a GM I find giving players a sense of how long their actions will be taking helps them get a sense of what their characters are doing. It also helps you keep every player involved (as you can note that one character's actions - say searching an area throughly or shopping for the perfect outfit etc will take X amount of time - and then you can ask "what is everyone else doing while that happens"...)
I find the primary distinction that matters to the flow of the game is active encounters and actions vs "downtime" (rests, crafting, running a PC's kingdom etc). Both matter to many games and the emphasis of most campaigns and scenarios is on the former but the later can be very important to play through as well - but should generally be done quickly (and in many cases can be handled away from the table - i.e. what are characters doing when not adventuring).
Players tend to be trained that the scenes a GM describes (especially those where a map is drawn and miniatures put down on the table if you use them) are the ones that matter - so it is good to occasionally shake things up - give them some chances to roleplay w/o combat their time in the market or exploring a new village etc.
