Dithering is a term used for the process of adding white noise to an audio file in an attempt to mask truncation distortion due to low bit depths. It is important to know about sample rate and bit depth when referring to dithering methods.
When a signal is converted in the digital domain, it becomes a discreet signal rather than continuous, like that of analog. This means that in any given phase of a digital signal, a numerical value is assigned to this position. When a digital signal is played, the D/A converter (sound card/audio interface) will recreate the signal according to the sample rate and bit depth.
In the professional audio world, an audio file with a sample rate of 44.1kHz and a bit depth of 24 is considered to be that of professional quality audio. The sample rate refers to the number of times per second your converter ‘reads out’ and reproduces a signal. As far as professional audio is concerned, you have 24 bits of resolution per sample. The digital signal being converted may not fall exactly on a quantifiable X-Y position prompting the closest quantifiable position to be "read out" instead. This process is called quantization and gives digital sound its characteristics. Quantization causes very slight distortion and is known as truncation distortion. Often digital sounds have been described as ‘bright’ or ‘brittle’ due to artefacts created by quantization. Adding a method of dithering can ‘fill in’ the signal so that the sample lands on an assigned numerical value rather than allowing the converter to calculate the signals position (incorrectly, at times). This process removes quantization error but in turn increases the noise floor in your track. One of the classic give and take's in music production.
Whether you work at 16 or 24 bit, it is important to work at a consistent bit depth throughout the entirety of your project. When a 24-bit audio file is played across a 16-bit system, dithering should be taken into consideration. If you’re working at 16 bit, you are most likely to avoid the use of dithering altogether. Most playback systems utilize a 16-bit system.