From bits to colors
Every pixel has three channels: red, green and blue. Bit depth is how many steps each channel can take. 8 bits gives 256 steps per channel, and 10 bits gives 1024. Mixing the three channels gives 16.7 million colors at 8-bit and 1073.7 million at 10-bit.
Vendors also count the total across all three channels, so 8-bit per channel is called 24-bit true color and 10-bit per channel is 30-bit deep color. Same thing, different counting.
Banding and what 10-bit really means
More steps mean a smoother ramp. With too few steps across a dark sky or a smooth wall, the eye sees bands instead of a gradient. HDR stretches the brightness range, so each step covers a bigger jump, and HDR10 uses 10 bits to keep the steps small. The PQ curve was designed so that 12 bits show no visible banding at all.
A 10-bit label doesn't always mean a 10-bit panel. Some panels are 8-bit and fake the last two bits by switching between neighboring values from frame to frame (dithering, often called FRC), and some vendors sell these 24-bit panels as 30-bit. DisplayHDR draws the line in a similar place: every tier needs a 10-bit video signal, but a panel driver with 8 bits plus 2 bits of dithering is allowed. The gradient banding test shows whether steps are visible on your screen.
What it costs in bandwidth
More bits per channel means more data on the cable. A 4K 60 Hz signal needs 14.3 Gbps at 8-bit and 17.8 Gbps at 10-bit. HDMI 2.0 carries 14.4 Gbps of data, so full color 10-bit doesn't fit. Dropping to 4:2:2 chroma subsampling brings it to 11.9 Gbps, which fits.
HDMI 2.1 has room for more. A 4K 120 Hz signal at 10-bit full color needs 35.6 Gbps and fits in its 42.6 Gbps. The Bandwidth Calculator works this out for any mode and link, and shows when Display Stream Compression is needed.