I am using Electrum as an interface for Ledger Nano, does it mean the wallet file is totally encypted because it does not ask for a password?
There are two ways to use the Ledger Nano and Electrum...
1. Operate with an "encrypted" wallet file, which will require that you connect and unlock your Ledger Nano device before you can view the wallet in Electrum. Effectively, the HW wallet device itself is the "password" to open your wallet file.
or
2. Operate with an "unencrypted" wallet file, which you can open and view all your addresses/balances etc, but cannot SEND any transactions without the hardware device connected and unlocked.
You are given the choice when creating the wallet in Electrum, and it defaults to Option 1.:
I tried to view the seed but it shows a grey colored "seed" when I connected the HW wallet.
Correct, the seed is not stored in Electrum, so there is nothing to view. The seed is safely and securely stored ONLY within the HW wallet itself... and by design is NEVER shown/displayed anywhere after the initial setup.