Dithering: It is a technique in pixel art in which colors are interlaced. The reasons why people do this vary from tapering to texturing, to blending colors to create new ones. Dithering has its use, but I do not believe creating new colors, a commonly-presented use of dithering, ought to be taken at face-value. Many dithers I've seen actually fall short of actually blending colors - and instead the pixel dots are plainly visible and often doesn't feel like they're add anything to a given piece.
Lately, I poked around with a console game called the Adventures of Lomax, which I bought used from a local game store. Its main graphic artist is Henk Nieborg, which was the main reason why I got the game - just to have a closer look at stuff done by somebody hailed as a master of pixel art.
This was a bit of something I found on Henk Nieborg's gallery [which you can find here]
However, if you ever played the game on an actual playstation (or the PS2), you may notice that what you see on your LCD computer monitor won't look the same on a TV screen.
My PS2 has to do one thing in order for it to work on my TV screen - it has to convert the game screen into a TV signal format for it to work.
What does converting an image to TV signal format do to an image? Since I'm lucky to have found a used copy of this game, I manage to get a rough snapshot of how the graphics look an an actual TV monitor (though, a LCD screen mind you).
While these are cropped from screenshots of different scenes, but at least we can agree these are the exact same rocks, can we?
Assuming you as a reader is using a LCD computer monitor, here's what the above rocks look like on said monitor:
You can plainly see the green and brown pixels, on the upper faces of these rocks, so they are not blending. You cannot see the pixel dots in the TV version, so they actually blend together. I believe this was what people meant when they say that dithering can be used to blend colors together - Dithering was originally meant to literally blend colors together like what happens on my TV monitor.
Pretty much, converting pixel art into TV signal effectively blurs the pixels so you can't really discern any pixels at all. Henk Nieborg's pixel art effectively looks painted. (It is even more amusing when some of my PS2 games appear more
pixellated than actual pixel art)
I cannot know what everyone means when they individually say that dithering can be used to blend colors. To allude to my own ideals, historically, it has been used because of technical limitations but they no longer exist in 2013. The only limitations today are self-imposed and arbitrary. Blurry displays also made it useful but with today's technology, dithering's blending potential is much weaker.
With all that in mind, I figure that if dithering ought to be used today to blend colors, we gotta be more careful and wonder what we exactly mean when we say that dithering is a technique blends colors together.
Fun fact: Henk Nieborg's use of dithering has also become more conservative as time goes on. I have a good hunch that changing technology may have an influence on that.