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Dithering: Dithering is a form of noise, or 'erroneous' signal or data which is added to sample data for the purpose of minimizing quantization error. Dither is routinely used in processing of both digital audio and digital video data. Jitter is not synonymous with dither.
Ditherimg is a mean to decrease spur level at the output of the NCO.
As you know there are some spurs at the output of an NCo, if you want to increase SFDR one way is to add some noise to the output of the phase accumulator( dithering).
Dithering reduce spur level but increase phase noise of the produced sine.
In audio signal compression, people would like the quantization to be white and independent of the signal. To this end, the characteristic function of the signal should be "bandlimited". Dither is like antialiasing filter in sampling theory to limit the "band" of the signal's characteristic function when entering the quantizer.