The dictionary has several meanings to the word dither. The most common is to be indecisive. The second meaning is more related to what interests us: to add white noise.
Dither is the addition of randomness into low-level signals. Surprisingly, we do this to lower distortion of predictable errors.
Here’s a great example from a Photoshop help book on digital photography.
The first image hasn’t enough low-level information to smoothly transition between the differing shades in the bird’s wings. By adding some random noise—dither—we can smooth out the image as in the second example.
In digital audio, the problems of quantization (converting a steady-state analog signal into a series of fixed values) are essentially the same: a predictable error between steps generates measurable distortion. If we randomize the errors by adding in a bit of dither, then a few things happen for the better. First, our chances of hitting the right transition levels are bettered, and second, our ear is forgiving of random and uncorrelated events.
We can easily ignore a touch of noise but it is much more difficult to ignore distortion. Look again at the two pictures. I bet you didn’t even notice the 2nd picture is slightly noisier than the first.
Nearly every CD you have ever listened to has some amount of dither added to it and for the better.
And all along you thought we go out of our way to lower noise every chance we get.
If you want to dig a bit deeper into the how and why we add noise to lower distortion, there’s a great Wikipedia article on it you can access here.