Steganography is the practice of writing hidden messages in such a way that no one apart from the intended recipient even knows that a message has been sent. Generally a steganographic message will appear to be something else, like a shopping list, an article, a picture, or some other "cover" message.
Steganographic messages are typically first encrypted by some traditional means, and then a covertext is modified in some way to contain the encrypted message, resulting in stegotext. For example, the letter size, spacing, typeface, or other characteristics of a covertext can be manipulated to carry the hidden message; only the recipient (who must know the technique used) can recover the message and then decrypt it. Francis Bacon is known to have used such a technique to hide messages in hand-written letters.
The larger the cover message is (in terms of data content) relative to the hidden message, the easier it is to hide the latter. For this reason, digital pictures (which contain a large amount of data) are commonly used to hide messages on the Internet and on other communication media. For example A 24 bit bitmap will have 8 bits representing each of the three colours red, green, and blue. If we consider just the blue there will be 28 different values of blue. The difference between say 11111111 and 11111110 is likely to be undetectable by the human eye. Therefore the least significant bit can be used for something else other than colour information. If we do it with the green and the red as well we can get one letter of Ascii text per 3 pixels.
Stated somewhat more formally, the objective for making steganographic encoding difficult to detect is to ensure that the changes to the carrier (the original signal) due to the injection of the payload (the signal to covertly embed) appear statistically negligible; that is to say, the changes are indistinguishable from the noise floor of the carrier.
(From an information theoretical point of view, this means that the channel has more capacity than the signal, i.e., there is redundancy. For a digital image, this may be noise from the imaging element; for digital audio, it may be noise from recording techniques or amplification equipment. Any system with an analog amplification stage will also introduce so-called thermal or "1/f" noise, which can be exploited as a noise cover. In addition, lossy compression schemes (such as jpeg) always introduce some error into the decompressed data; it is possible to exploit this for steganographic use as well.)
Steganography can be used for digital watermarking, where a message (being simply an identifier) is hidden in an image so that its source can be tracked or verified. In fact, in Japan "... the Content ID Forum and the Digital Content Association of Japan started tests with a system of digital watermarks "to prevent piracy" (The Japan Times Online 26-08-2001)."