You can select between three types of dithering with these options. Choosing None means there will be no dithering, Ordered uses an ordered (regular) dithering pattern and Error diffusion uses error-diffused dithering (a more complex dithering technique). In general, error diffusion will give the best results, but only use dithering when really necessary as it prevents the file compression working so well and so makes files larger. You cannot use ordered dithering if you are using an optimized palette.

Note that you can set the dithering type for the screen display too, see Changing the screen dithering.