First off, you should know what an encoding is. Read The Absolute Minimum Every Software Developer Absolutely, Positively Must Know About Unicode and Character Sets (No Excuses!).
Now, the problem you are having is that most people write code in ASCII. Roughly speaking, that means that they use Latin letters, numerals and basic punctuation only in the code files themselves. You appear to have used a non-ASCII character code inside your program, which is confusing Python.
There are two ways to fix this. The first is to tell Python with what encoding you would like it to read the text file. You can do that by adding a # coding declaration at the top of the tile. The second, and probably better, is to restrict yourself to ASCII code. Remember that you can always have whatever characters you like inside strings, by writing them in their encoded form as e.g. \x00 or whatever.