This effect adds dithering to the image. Most commonly used image standards use a limited amount of colors to represent images. The human eye is very accurate in detecting differences between colors and therefore even 16 million colors is not always enough. Dithering improves image quality by blending available colors.
Red bits, Green bits, Blue bits: The suitable amount of dithering depends on the accuracy, which is used for storing the image. You can select the data type accuracy using these sliders. Value 8 is suitable for 24 bit output (16 million colors). Value 5 is suitable for 32 000 color output (16 bits).
Channel: The effect can be used for dithering any channel. Color channel is the usual target of dithering, but you can select another channel from this list.