The Floyd-Steinberg dithering algorithm is a technique used in digital image processing to create the illusion of color depth in images with a limited color palette. It works by distributing the quantization error of a pixel to its neighboring pixels, allowing for a smoother transition between colors. This method is particularly useful in reducing banding effects in images. Developed by Robert W. Floyd and Louis Steinberg in 1975, this algorithm is widely used in applications such as printing and displaying images on devices with restricted color capabilities. By effectively managing how colors are represented, it enhances the visual quality of images while minimizing the loss of detail.