A discussion I had to do several times:
What is better? Potentiometers or rotary incremental encoders?
I still prefer potentiometers over rotary encoders, but that is just my experience with these parts. Potentiometers (I’ll call them pots for short) are just giving out an analog signal, either resistance, a voltage or current, depending on your application. The big advantageis that your circuit remains relatively compact and simple. Espacially when you have a lot of analog signalling like in function and waveform generators or mixers and synthesizers. Also pots have this special retro-feeling which is just nice.
The downside of them is that they are quite inaccurate in their values and can and will change their resistance with time and temperature. And you can’t turn them the full 360° (except some special ones, but even these will not turn forever in one direction).
Rotary encoders and incremental encoders are a bit more complicated. They require a small logic circuit or a microcontroller in order to control a digital potentiometer (aka DAC, DigiPot etc…). Depending on the microcontroller and all its tasks reaction time on these can be quite slow. And depending on your digital potentiometer quite inaccurate too.
But you can turn them the full 360° and they are easier to turn. And if left as is, the resistance value is unlikely to change much. Sensing the encoders can also be easy because it’s just digital pulses instead of analog ones.
They are used nearly everywhere today, even in small consumer electronics. They are easy to use, especially with todays mass of microcontrollers. So they will some day find the way to my workbench too.