In BTC vocabulary, dust is a term used in tracking a quantity of BTC thought to be negligible to transfer in a transaction since the fee charged for the transaction will be higher than the amount transferred. Usually, it is like a hundred microunit of BTC (Satoshis).
Since transferring dust is costly compared to the size of the trade, most BTC traders do not have any excuse to trade with it. However, that does not stop other people, for instance, those researching the blockchain from making use of it.
People running the analytics of blockchain make use of dust to identify users and their transaction address. They make connections between the wallet of the analytics company and that of the receiver's address.
As soon as these connections are established, the company can conduct its analysis, using the collected data to track "Internet Protocol" addresses to the receiver's wallet.
However, it is being thought that increasing the limit of dust might help to reduce its effect. But, there are no assurances that increasing the limit will help in solving the problem completely.
Source: Coindesk
