A bubble is a convoy of vehicles traveling along the same route. The outer vehicles are empty, protecting the higher value items in the centre. E.g.
V1 V2 V3 V4 V5 V6 V7 V8 V9 V10 V11
If V1 to V11 are vehicles, the high value items could be placed in V6. Pirates / highwaymen attacking from either end of the “bubble” would not hit your center vehicle and its precious cargo because they must spend an hour (give or take) attacking each vehicle in the convoy. This would therefore prevent them from pillaging V6. This also means that the longer the route, the large the bubble should be.
Here is an example to illustrate. Trader Joe sends his convoy from Harmond to Burbana with 5 Vans (V1-V5) with V3 containing some precious cargo (A Diamond-Studded Phone!). All vans are empty, save V3.
V1 V2 V3 V4 V5-->
As his convoy travels along he encounters Highwayman Bob in his Golf Cart (G1) heading from Burbana to Harmond (opposite direction)
V1 V2 V3 V4 V5-->v<--G1
As V5 and G1 battle (which V5 will unavoidably lose), the rest of the convoy continues on. V5's battle takes around an hour, so it will be quite a bit behind the rest of the convoy. While it battles, all other vehicles continue on (don't ask why you can pass a battle in progress, but you can't drive around enemies or drive far off in the wilderness...)
<--G1 V5 V1 V2 V3 V4-->
V5 is now trailing the convoy after losing its battle, shoring up the rear defense.
Eventually Highwayman Jim comes along in his Tank (T1) leaving Harmond heading towards Burbana, hoping to catch the convoy in his vastly superior vehicle.
T1--> V5 V1 V2 V3 V4-->
Of course, first he fights V5 and wins. Meanwhile, the convoy continues on
T1vV5 V1 V2 V3 V4-->
V5 T1vV1 V2 V3 V4-->
V1 V5 T1vV2 V3 V4-->
But then V3 makes it to Burbana and safety! See, bubbles work! Huzzah!
This effect can be counteracted by a Pirate/Highwayman using swarms of vehicles themselves. Of course, this quickly gets expensive because either the vehicles are well-equipped (expensive) or they are cheap. If they are poorly-equipped (cheap), they will be damaged by guards who are not bribed. The more cheap vehicles, the more bribes required, or the vehicle is damaged and either useless or expensive to repair.
In other words, given the same amount of money to start a venture it is far cheaper for a Trader to bubble than a Highwayman. Of course, given success a Trader only retains their value. On success a Highwayman makes money. Insert long-winded economics analysis here.
There are several techniques to improve bubbling.
The more vehicles on a route, the better. This is the general rule of bubbling. If you don't have many vehicles, you can contact people with many vehicles to "swarm" the route for a small amount of gold and increase protection. This service is currently offered by the Hunters Guild, led by capitalisom.
The more protected the item in the middle is, the less likely it is to be stolen. A method of adding extra protection is to send empty vehicles from the destination city, like so.
The bubble containing the item will get additional front protection from the destination city vehicles initially, and when they pass they will act as a rear blockade too. Be careful when doing this that you use vehicles of the same color - Highwaymen target based on color, and so if your colors are mismatched they might as well be on different routes.
Because the point of bubbling is to slow down attackers and sneak by with the goods while they are fighting worthless battles, one can actually track the battles being fought and send faster vehicles. For instance, if your main caravan is done with Scooters (green, speed 55) and you notice it is being hit by a Highwayman close to a city, you can send Vans (green, speed 80) to add additional weight to your bubble. You could also hire a Guard to leave a city and beat the crap out of your attacker. Some might even do it for free since it's in their best interest anyways, and having a tipoff to a vulnerable highwayman can be profitable all by itself.