Dithering is a process by which pixels of two colors are placed very close to each other so that the human eye is not able to distinguish the colors individually but, rather, sees a new color that is the combination of the two.
Why does dithering take place?
Dithering is an attempt to produce the desired color by a combination of two or more colors. We often come across it in systems where the monitor cannot display true color (16.7 million colors). Since the monitor is not able to display the correct color, the system places pixels of two colors very close to each other so that the final color may be produced. Dithering actually exploits the low resolution power of the human eye!
An Example of dithering in Gifs
Notice the peach colored background of the image on the left. Now, if I enlarge a portion of it, you’ll see that the background color actually consists of pixels of two colors.
Magnified image.
Dithering and colors
Dithering increases the number of colors in a gif. Also, it makes the gif very complex. The Gif compression algorithm (LZW algorithm compresses) areas of flat color very well but dithered images do not have such areas. Hence, dithering considerably increases the file size of Gif images.
I’ve found the Replacer tool 
in Paint Shop Pro very helpful in removing extra colors introduced by dithering.
