Gmail provides an SSL connection and also encrypts the entire session by default. But if you send a mail, once it leaves gmails servers, it can be read at any point on the internet. But what about Gmail to Gmail paths (i.e. I send an email from my gmail account to somebody elses gmail account). Is that encrypted too, within gmails own servers? Also the same question for gmail chat (chatting with another gmail user).
While we have no visibility of Google's internal security measures, there is a more general answer.
There are two common approaches to securing an email.
Both work in theory, but in practice it is very difficult to be sure that the channel stays encrypted over the whole of it's journey, because you usually don't control each step of the way.
In addition, even if Google were encrypting their internal traffic, they decrypt it at various points so they can read the contents (so they can target adverts at you) so they, or an internal attacker, can access your mail regardless.
So as a general rule, if you need to email confidential information, you should encrypt it at the client.