anUnicode.encode('encoding') results in a string object and can be called on a unicode object
aString.decode('encoding') results in an unicode object and can be called on a string, encoded in given encoding.
Some more explanations:
You can create some unicode object, which doesn't have any encoding set. The way it is stored by Python in memory is none of your concern. You can search it, split it and call any string manipulating function you like.
But there comes a time, when you'd like to print your unicode object to console or into some text file. So you have to encode it (for example - in UTF-8), you call encode('utf-8') and you get a string with '\u<someNumber>' inside, which is perfectly printable.
Then, again - you'd like to do the opposite - read string encoded in UTF-8 and treat it as an Unicode, so the \u360 would be one character, not 5. Then you decode a string (with selected encoding) and get brand new object of the unicode type.
Just as a side note - you can select some pervert encoding, like 'zip', 'base64', 'rot' and some of them will convert from string to string, but I believe the most common case is one that involves UTF-8/UTF-16 and string.