Do heroes recover health at the end of each encounter or at the end of each quest (usually two encounters)?
Heroes do not recover health at the end of each encounter, only fatigue. Heroes do recover full health and fatigue at the end of each Quest (two encounters).
The rule book regarding Quests (page 18):
Heroes keep all damage suffered during Encounter 1.
Heroes recover all fatigue suffered during Encounter 1.
and (page 20) The Campaign Phase
2). Cleanup: All heroes recover all damage and all fatigue....