The concepts of inner light and encompassing light are borrowed to some degree from the world in which we live.
If one were to describe.them in a more abstract sense, inner and encompassing lights are two types of influence.
The inner influence derives from an internal sensation in which a person comprehends and senses something and acts based on that comprehension and those feelings.
This type of influence is common, for instance, when one is studying Torah.
There is an additional type of influence, also quite common, which is described as being encompassing.
An encompassing influence does not become absorbed within one’s intellect or feelings.
Rather, one is merely situated in a particular atmosphere, in a place and environment that influence him without his knowing and feeling it.
In this sense, the dwelling of the Divine Presence upon a person who performs a mitzva is characterized as an encompassing influence (an “encompassing light”).
The person is unaware of this influence, as it is inherently unable to be grasped.
Yet since his soul and body are vital partners in the performance of the mitzva, it is impossible for them not to experience some degree of resonance with or acknowledgement of the influence (or “light”) engendered by the mitzva.
Rabbi Adin Steinsaltz