Further Information

An internationalised domain name (IDN) is an Internet domain name that contains at least one label that is displayed in software applications, in whole or in part, in a non-latin script or alphabet, such as Arabic, Chinese, Cyrillic, Devanagari, Greek, Hebrew or the Latin alphabet-based characters with diacritics or ligatures, such as French. These writing systems are encoded by computers in multibyte Unicode. Internationalized domain names are stored in the Domain Name System (DNS) as ASCII strings using Punycode transcription. wikipedia

Punycode is a representation of Unicode with the limited ASCII character subset used for Internet hostnames. Using Punycode, host names containing Unicode characters are transcoded to a subset of ASCII consisting of letters, digits, and hyphens, which is called the Letter-Digit-Hyphen (LDH) subset. To prevent non-international domain names containing hyphens from being accidentally interpreted as Punycode, international domain name Punycode sequences have a so-called ASCII Compatible Encoding (ACE) prefix, "xn--", prepended. For example, München (German name for Munich) is encoded as xn--Mnchen-3ya. wikipedia

If you go for registering an internationalised domain name using non-latin script or alphabet, you will see at one point in the process that your desired domain name is converted to punycode. E.g. my registrar even only shows punycoded domain names in all subsequent customisation forms.