from GM service info....
Chatter is essentially the build-up and release of energy between the differential clutch packs in a limited slip differential during operation. This phenomenon often occurs when torque is transferred between the clutches or when rotational speeds change. During the stick-slip phase, energy is built up to a point where contact between the clutch plates change between static friction (stick) and dynamic friction (slip), resulting in noticeable vibrations. It is this vibration that causes an audible chatter or ratcheting to be heard within the differential. While certainly an annoying characteristic, there is typically no mechanical damage occurring to the differential. It is most often noticed in parking lots or slow driving while turning where the outside wheel turns faster than the inside wheel.
In an effort to control this chatter, friction modifiers are often used. These additives result in a smoother transition between the two states of friction: static and dynamic. Static friction occurs when the clutches physically lock together, while dynamic friction occurs as the clutches are slipping, ergo Limited Slip Differential.