Some replies to Mark, Ray and Bill.
To MarkDS:
Second bullet OK, but I don't see how this contributes to greater D/R
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Because averaging the signal from several photosites (by binning or downsampling) reduces the RMS noise level while not reducing the signal level, and that increases the ratio of maximum signal to noise floor, which is the definition of dynamic range.
In other words, at any given signal level, S/N is better, and so you can go to a lower signal level (darker parts of the scene) before the per-pixel S/N level gets down to the same threshold of acceptable S/N, such as the 10:1 suggested by Kodak as the minimum acceptable.
To Ray: I should have said a minimum of 1/2 stop, and perhaps more but less than a full stop.
A half stop is what one would get if photon shot noise (and perhaps dark current noise) are the main noise sources, because these sources follow a
square root law: noise increases in proportion to the square root of signal (photon or electron count).
Some other noise sources might not increase as fast with pixel and sensor size, though all data I have seen on the read noise of sensors show some noticeable increase in electrons of noise with photosite area. Thus total noise increases, but at most by the square root trend, and so S/N ratio and DR increase by between a factor between 1 and sqrt(2) for a doubling of sensor area, which is an improvement of between a half and one stop at equal exposure level.
The better sensor technology gets, the more that noise is dominated by "square root law" sources like photon shot noise, and so the closer one gets to the 1/2 stop I mentioned.
To Bill Janes: some CCD read noise comes from the photosites themselves (dark current noise) and this part combines by the square root law. So I would expect 2x2 binning to improve DR and S/N by a factor of between 2 and 4. One indication of this is the Kodak CCD's of similar era show a clear trend of increasing read noise with increasing photosite area, fitting a square root of area trend fairly well so that S/N ratio and DR grows roughly as the square root of photosite area.