Even amongst those who actually know what dither is, I think there's still a lot of confusion about how it works and how best to use it. Fortunately, there's a great explainer available on Ian Shepherd's site!
This video talks about the basics of what dither is, how it works, and when you need to use it -- with some great audio examples to back things up!
For some other fabulous audio demonstrations of digitisation artefacts and the effects of dither, check out this in-depth article from Hugh Robjohns over at Sound On Sound magazine: 'Digital Problems, Practical Solutions'. Plus there are a couple more cool dither-related articles from Ian that are worth a look too: 'When Should You Use Dither?' and 'Is Dither Needed For MP3?'