TL;DR Dilution is when a company issues new shares, making every existing share a smaller percentage of the company — same pie, more slices, thinner slices.
The pizza version
You own 1 of a company's 100 shares: 1% of the business. The company creates 100 new shares and sells them. Now there are 200 shares and yours is 0.5% of the company. Nobody took your share — they just doubled the number of slices, and yours got thinner.
Earnings get split the same way. If the company makes $200 in profit: before, your share represented $2 of earnings; after, $1. Same company, same profit, half your claim on it.
Why companies dilute anyway
Issuing shares is how companies raise money without borrowing. Sometimes that's great: a young company selling shares to fund growth that doubles the business has made every thinner slice worth more overall. Dilution funded by value creation is how basically every startup you admire got big.
Other times it's survival: a struggling company that can't borrow keeps selling new shares just to pay the bills, shredding shareholders a few percent at a time. Watch enough small caps and you'll see companies whose share count triples in a few years while the business goes nowhere. That's a slow-motion transfer of ownership from you to whoever keeps buying the new shares.
Stock-based compensation dilutes too — employees are paid in newly created shares. Normal in tech; worth checking the yearly rate.
How to spot it
Look for "shares outstanding" over time (any decent tool charts it). Rising a little each year at a growing company: routine. Rising fast at a company that keeps announcing "offerings": that's the shredder. Also worth knowing: buybacks are reverse dilution — the company buys and retires shares, making every remaining slice bigger.
The common mistake
Ignoring share count entirely and staring only at share price. A stock can go from $10 to $12 while the share count doubles — the price chart says +20%, but your claim on the actual business shrank.
Educational only — not investment advice. Dilution isn't automatically bad; unexamined dilution is.