AWS Nitro Enclaves are specialised virtual machines designed to operate as isolated environments within EC2 instances. They enhance security for sensitive data processing by providing a restricted environment where data can be decrypted and processed without exposure to less secure parts of the host system. Key features include isolation from other applications, attestation mechanisms to verify the enclave's integrity, and integration with other AWS services like S3 and RDS. This ensures a high level of security for applications requiring stringent data protection, making Nitro Enclaves essential for sensitive computing tasks.