Diffuse reduction reduces an image to either black and white or 4bpp color by performing dithering according to a threshold. The type of dithering used is known as error diffusion, which attempts to spread out error (the difference in color between input and output pixels) across a two dimensional space in the output image.

A threshold value of 128 will produce an output image in which black and white are in equal proportion. A value greater than 128 would mean more bright than dark, and a value less than 128 would mean more dark than bright.

When reducing to 4bpp, a palette containing colors to use for the output image can optionally be specified. If this palette is not supplied, a default palette will be used.