It's state of the art block level encryption, however file system level encryption such as what will be offered by the upcoming APFS is fundamentally better.

In a block level encryption each sector is encrypted below the file system. Doing the naïve thing of encrypting each sector with the encryption key is fundamentally insecure. This is called the EBC mode of operation. There's a nice picture of a penguin on wikipedia encrypted with ECB which demonstrates this:

https://en.wikipedia.org/wiki/Block_cipher_mode_of_operation...

Secure mode of operations generally try to propagate the result of previously encrypted blocks to the next ones. But this approach is not really suitable for mass storage devices. You cannot re-encrypt all the sectors behind the one you just changed. That's just impractical, since writing to sector #0 amounts to rewrite the entire disk.

So in practice schemes like AES-XTS are used. They work by having some kind of way of "tweaking" the encryption, so that it is different for each block (avoiding the pitfalls of ECB), but in a way which allows random access to sectors (i.e. in a way that is predictable). AES-XTS is a tradeoff for this special use case but it is not as robust as more classical modes of operations which would typically be used in an encrypted filesystem.

Details about AES-XTS issues: https://sockpuppet.org/blog/2014/04/30/you-dont-want-xts/

It's as secure/strong as the standards' based cryptographic method used, i.e., AES-128 or AES-256. If you're curious about the strength of FileVault, some academics published a paper detailing their analysis (spoiler: they thought it was pretty good): http://eprint.iacr.org/2012/374.pdf

I never cared about encrypting local disks until my MacBook was stolen three days ago. I have backups but the thought of someone having all my data is very scary.

If you are using disk utility to create an encrypted container file (as opposed to an on-disk encrypted volume), you may want to check my open source project https://github.com/netheril96/securefs. It encrypts at file level with AES-GCM, rather than AES-XTS at block level, and the size is not fixed at creation.

Another (related) question: how much slower is MacOS with FDE enabled?

It is standard security, nothing out of the blue for a default functionality included in an OS, meaning it is of solid average quality, which, however, unfortunately in the world of security means it is probably not up to par and worth using.

The encryption standards it uses are pretty good, but that is not where blanket whole-disk encryption (which I assume you're talking about) fail. For example, hackers could analyze the preboot environment of an encrypted mac and sniff out the password using a variety of methods. Simply put, whole-disk encryption is too complicated and bug-prone process to really trust to closed-source software.

As for single-file encryption, which is relatively neat and simple, Disk Utility would probably do a pretty good job.