Trademark infringement results when a defendant uses a confusingly similar mark to a plaintiff's mark. Trademark dilution results when a defendant uses a mark in a way that lessens the distinctiveness of a famous trademark, regardless of a likelihood of confusion. This is a clear example of trademark dilution: an iPhone game that allows users to give plastic surgery to an overweight Barbie.
There are two types of trademark dilution: blurring and tarnishment. Dilution by blurring occurs when a defendant unauthorizedly uses a mark on dissimilar products and services than the famous mark, slowly reducing its distinctiveness. A hypothetical example of this would be a company providing mufflers under the brand name of "Nike." Obviously, consumers would not think that Nike mufflers were associated with the athletic shoes and apparel company, but allowing Nike mufflers to operate would lessen the distinctiveness of the Nike mark over time. Dilution by tarnishment occurs when a defendant uses a mark in unsavory contexts, for instance in an iPhone game where users give Barbie plastic surgery.