Dithering is the intentional use of noise (random sounds) to reduce the error of compression.
Example below:
Figure 1. Original photo; note the smoothness in the detail.
Figure 2. Original image using the web-safe color palette with no dithering applied. Note the large flat areas and loss of detail.
Figure 3. Original image using the web-safe color palette with Floyd–Steinberg dithering. Note that even though the same palette is used, the application of dithering gives a better representation of the original.