DitheringBasic DitheringOn the bare level (which is the one the artist should approach this effect most of the time) dithering is like buffering. It belongs to a pixel cluster and serves the end of smoothing parts of it which touch other pixel clusters. Let us consider this schema:

The top form is an 1bit pixel cluster. Think of this as an oily brush stroke. If the artist just has the two colors to work with yet they wanted the shape to taper off or be softer in places they could employ dithering very selectively like in the bottom form. Look how the dithering emphasizes the flow of the pixel cluster and most importantly look how the dithering doesn't dominate the cluster.
If there is more dithering belonging to a cluster than there is solid, opaque color, then the dithering becomes a cluster in itself. This is a necessary function for dithering some times, especially in environments where the artist may use only very few colors to convey objects that have a lot of levels. But for the purposes of a basic survey of the effect, the artist is encouraged to keep the dithering as part of the cluster it belongs to and to use it to emphasize the flow of the form.
The middle form is a slightly different proposition. Here the artist has more shades. He has used them to break up the brush stroke cluster into smaller clusters of pixels. Note how if you squint, the middle form and the form below it are very similar.
Dithering = buffering. However, in segmenting the cluster into smaller clusters then the artist has the opportunity to smooth things out further within the meta-cluster by dithering between the available colors, as seen in the right, and final, form. Again the artist should keep in mind the flow of the meta-cluster and now additionally the flow of the smaller clusters that it comprises of. In most cases the pixel artist will not be working with such large clusters. Instead they may find themselves wrestling with 3-4 pixels at a time trying to find where they belong. This is the essence of pixel art, finding where each pixel belongs in relation to the clusters that are vying for its inclusion. In small spaces, the power of the single pixel, as we've discussed, becomes stronger. A single pixel can make or break a cluster and therefore dithering serves to confuse the forms more than it smooths them. Let's then consider this argument:
1. The smaller the pixel space the artist has to work with, the less dithering they should employ for purposes of smoothing between clusters.
2. The more colors the artist has to work with, the less dithering they need to employ for the same purpose.
Therefore:
3. In most pieces of small, unrestricted (in terms of color count) pixel art don't be surprised if you never have to dither for purposes of smoothing.
(there might be a call for dithering for textural purposes, to be explained later)
{Furthermore this would explain why dithering is almost never employed in the rendering of video game sprites, where as we've mentioned before, besides usually being small, also show single pixels as being very powerful in conveying specific information.}If the viewer zooms in on the example they will note that for this I used the 50% checkerboard dither, and then the 25% version where every second line (vertical or horizontal, it's the same) is omitted. The reason for this is very simple: When I desire to do basic dithering, I start with 50% dither and establish a good cluster shape that augments the flow I am looking for. Then I ease the edges of this 50% pattern more into the clusters they are bridging towards with the 25% dither, and then finally some spare pixels around that. This ensure that the priority of shapes, as they take place in the image is always Solid Color > 50% dither > 25% dither. Again, in most basic applications of dithering, the artist will not be called to use 25% dithering (or other, less busy patterns) in big surfaces and as clusters in themselves. This fundamental exercise comes in handy much more than it restricts the beginning artist.
Let's look at what not to do:

Here we have a hierarchy of errors. The initial cluster is ill-defined. This occurs a lot with beginning pixel artists that start by tracing some reference (like a photo of their girlfriend) at a very high resolution and then they place clusters without any flow or optimization. Then they try to, effectivel,
blur between the bad clusters, creating amorphous shapes without priority. When you have a bad metacluster, dithering will only serve to make it worse. Especially if the dithering is overdone and it dominates the initial shapes. What beginners then often end up with is not Pixel Art, but
a piece of art made of pixels.
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On an
Advanced Dithering section I will discuss the usage of dithering not so much for purposes of softening but for achieving a rough texturing or a richer base surface. Interlace dithering, a specific sort of banding error that is special to dithering (dither-aa clash) and the capabilities of noisy dithering as opposed to ordered.