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DLP stands for Digital Light Processing. Essentially, a tiny, very precise chip manipulates light by changing the position of thousands of microscopic mirrors. The mirrors can turn on and off thousands of times per second, and are used to create a black-and-white picture using up to 1,024 shades of gray.
Before that picture reaches the screen, color wheels are used to filter it so that the color is true and bright. Newer-model DLP rear projection TVs can produce more than 35 trillion colors.
The picture quality on a DLP projection TV is usually gorgeous, particularly in more recent models that have three micromirror chips instead of just one. (The older one-chip models are prone to a "rainbow effect" when the picture changes focus.)