The short explanation
8-bit gives 256 levels per color channel, 10-bit gives 1024 and 12-bit gives 4096. More levels means smoother gradients — and more data: 10-bit costs about 25% more bandwidth than 8-bit, 12-bit about 50%.
Where you run into it
For standard dynamic range, 8-bit is usually enough. HDR is where it stops being enough: stretching a wider brightness range across only 256 steps produces obvious banding in skies and dissolves, so HDR content is mastered at 10-bit.
Bit depth also competes with everything else for bandwidth. 4K120 at 4:4:4 is specified at 10-bit rather than 12 for exactly that reason. If you push bit depth up, something else — chroma or frame rate — has to come down.
One quirk worth knowing: 4:2:2 signals are always processed at 12-bit and never clipped, which is why specifications say “up to 12-bit” rather than listing it separately.
How the DR HDMI 8K handles it
The DR HDMI 8K supports 4K at 10, 12 and 16-bit, up to 48-bit deep color overall, and its EDID library lets you advertise a specific bit depth: 4K120 4:4:4 at 10-bit, 4K60 4:2:0 at 12-bit, 1080p at 12-bit or 8-bit. The OLED shows the color depth declared in the EDID on each side of the unit.
Want to test your own HDMI chain?
The DR HDMI 8K is sold through the HDFury.eu web shop.