They can make it more effective because they reduce the bits per pixel from e.g. 12 to 3.

They're usually flipping the least important bit, so the video compressor will probably ignore the dithering. It does turn a perfectly stable image into an unstable image, though, so it could potentially be harmful if you're compressing video of static text and geometry - I haven't tested this before, so it's an interesting point.

I remember coming upon this when trying to use PCoIP for remote access to workstations after the win7 to win 10 transition. It's a setting somewhere in Windows10 (maybe with specific video cards?) that uses dithering to improve image quality when you have a monitor that doesn't support HDR.

This absolutely wrecked the bandwidth as the whole screen was trying to refresh at 60Hz in a way that the PCoIP algorithm wasn't prepared for.

https://en.m.wikipedia.org/wiki/Teradici