Dropped stitches, for better or worse, occur when a stitch is removed from the needle and allowed to unravel down the length of the knitting, creating a column of horizontal ladders where the stitch should have been.
This technique is often used as a design element. The much-loved Clapotis from Knitty utilizes dropped stitches to create diagonal ridges. Raspy from Denim People uses strategically placed dropped stitches to give an unusual, edgy look to an otherwise simple pullover.
This amazing Destroyed Cowl by Martha Merzig uses a group of dropped stitches around the edges to give this eternity scarf a cool look.
I made mine in Manos del Uruguay Wool Classica Naturals. I love the thick and thin texture of this yarn, and the dropped stitches really give the variations a chance to shine through.
Of course, dropped stitches are not always a welcome sight. If you are knitting along and see the tell-tale loop:
you are experiencing a dropped stitch. Fortunately, it’s easy enough to fix.
First, put something in the stitch to keep it from dropping any farther down your piece. I often use a stitch marker or a bit of scrap yarn. On the knit side, work to just above your dropped stitch as shown below.
Next, find that crochet hook from your toolkit. Insert the hook into the front of the stitch and use it to grab the horizontal ladder behind the stitch and pull it through. You can remove your stitch marker or scrap yarn at this point.
If you have more horizontal ladders, repeat this process until you’ve used them up as pictured below. Put the last loop onto the left needle.
Dropped stitch fixed! If your stitch dropped down several rows, this can lead to a column where the tension looks a little off, but it should correct itself during blocking.
I find it easiest to fix a dropped stitch from the knit side rather than the purl side, but you can pick up a dropped purl stitch by going into the back of the stitch with your hook rather than the front. If you need to perform a fix in garter stitch, you will need to alternate pulling the ladder through the front and the back to duplicate the garter stitch pattern.
If you’d like to see a video of this process, knittinghelp.com has a great one on their Knitting Tips page called Fixing a Run/Dropped Stitch. They don't use a crochet hook, but the process is the same.
Whether you've dropped a stitch accidentally or want to try incorporating them into a knitted piece, hopefully this overview gives you a good place to start.