Digital BW, The Print

Yes, I agree with Michael. It's not really about absolute levels of tone differentiation, it's about high frequency modulation of details (which translates into tonal smoothness of fine details). Consider a billboard sign comprised of a checkerboard pattern with an ordered array of one square inch black squares and one square inch white squares. If you stand far enough away from the billboard, your eyes can't resolve the pattern. You will see a smooth light gray tonal pattern across the whole billboard (approximately 50% average reflection = about 0.3 density or a lab L* value = 76). As you move closer to the sign, you will begin to perceive slight pattern noise and thus a slight bifurcation of tone, ie. two tones with one tone slightly lighter and the other slightly darker, but you still won't resolve the black and white squares. Now move closer still, then you will finally begin to resolve the black and white squares. This is analogous to what is happening with 3 dots of gray inks versus 7, only unlike the two tone sign example you now have 4 tones to play with in the pattern for the 3 gray ink set (i.e, you have paper white as the fourth tone) or 8 tones to play with in the 7 ink system (again, with a paper white/no ink dot tone which makes eight levels of tone per dot location).  So smoothness and detail does increase with more tone levels per dot placement value on paper.  It allows the viewer to inspect the print closer and closer and still see what appears to be continuous tonality.

Does the average viewer get so close to see the dot pattern noise generated by the latest inkjet printers? No, but to the very discerning viewer, there is still a tangible difference, sort of like looking at contact prints made in the darkroom versus optically enlarged prints. As enlargement factors go up, tonality and sharpness starts to break down into grain pattern noise at a specific viewing distance from the print, and the resolving power of the human eye then starts to exceed the resolved features in the image.