Dormancy normalises coin-days-destroyed by size, so it answers how old the moving coins were rather than how many coin-days were destroyed in total. A day of small transfers by very old coins can register high dormancy with unremarkable volume.
Rising dormancy indicates older supply becoming active, which analysts associate with distribution from patient holders to newer ones. Falling dormancy means the market is being driven by recently acquired coins changing hands quickly.
The same caveats as CDD apply: custodial reshuffles, lost-then-found wallets, and mislabelled entities all distort it. It is most useful smoothed over weeks and read alongside hodl-waves, which shows the same information as a distribution rather than a single number.
Related: coin-days-destroyed, hodl-waves, sopr, realized-cap