Dithering is a process that uses digital noise to smooth out colors in digital graphics and sounds in digital audio.
All digital photos are an approximation of the original subject, since computers cannot display an infinite amount of colors. Instead, the colors are estimated, or rounded to the closest color available. For example, an 8-bit GIF image can only include 256 (2^8) colors. This may be enough for a logo or computer graphic, but is too few colors to accurately represent a digital photo. (This is why most digital photos are saved as 16 or 24-bit JPEG images, since they support thousands or millions of colors.)
When digital photos contain only a few hundred colors, they typically look blotchy, since large areas are represented by single colors. Dithering can be used to reduce this blotchy appearance by adding digital noise to smooth out the transitions between colors. This "noise" adds makes the photo appear more grainy, but gives it a more accurate representation since the colors blend together more smoothly. In fact, if you view a dithered 256-color image from far away, it may look identical to the same image that is represented by thousands or millions of colors.
Like digital images, digital audio recordings are approximations of the original analog source. Therefore, if the sampling rate or bit depth of an audio file is too low, it may sound choppy or rough. Dithering can be applied to the audio file to smooth out the roughness. Similar to dithering a digital image, audio dithering adds digital noise to the audio to smooth out the sound. If you view a dithered waveform in an audio editor, it will appear less blocky. More importantly, if you listen to a dithered audio track, it should sound smoother and more like the original analog sound.
Several types of dithering algorithms are used by various image and audio editors, though random dithering is the most common. While dithering is often used to improve the appearance and sound of low quality graphics and audio, it can also be applied to high quality images and recordings. In these situations, dithering may still provide extra smoothness to the image or sound.