We have support for various languages in our website, including Spanish, French and Swedish.
For now, the links in the site are NOT encoded before sent to the browser, sending the real accented chars (if such exists, i.e. href="www.(dot)example(dot)com/héllo.html") and not their HEX representation.
This works & looks good on all browsers, including Chrome, FF and IE.
However, we care great deal about SEO.
We got this tip that encoding the links before sending them to the browser (so instead of linking to http://www.example.com/héllo, we will link to http://www.example.com/h%E9llo) will improve the way search engines will 'understand' the links and the keywords in the URL.
This involves some work at our side, so we wanted to know if there's truth in that tip, but couldn't find anything addressing this issue.
