[dreamcompiler]

Exactly. Dithering is not a compression scheme; it's an encoding scheme. It's particularly useful in systems where you have limited sample dynamic range but you can sample much more frequently than the Nyquist criterion. It trades sample range for sample frequency while conveying the same information.

Audio CD players use Sigma-Delta modulation (also called "1-bit D/A converters") which is essentially just dithering in one dimension. But CDs don't contain fewer bits because of this.