More accurately, this is what you get when you try to use the 3rd party "Encoder" library. You will not get this error when compiling any code that does not use the Encoder library
The 3rd party Encoder library has architecture-specific code, so explicit support for each board architecture must be added to the library, rather than happening as a matter of course as occurs for libraries that only use the high level universal Arduino core API.
Support for the Renesas RA4M1-based UNO R4 Minima and UNO R4 WiFi boards has apparently already been added to the library:
So hopefully that indicates the addition of support to the library for the Nano R4 will be trivial.