How Dithering Works
Dithering is a technique used to overcome rendering issues in images containing a limited colour palette. For example, saving images for use in the web sometimes requires a file format, such as PNG or GIF, which can't use more than 256 different colour. These can create post rising or banding, an issue often found when using gradients that contain subtle transitions in colour.
To combat this, applications like Photoshop use dithering to simulate colours the image can't display by using adjacent pixels of different colours to give the impression of a third colour.
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