The duty cycle, also known as a duty ratio or multiplex rate, is the fraction of total time that each row of the LCD is addressed.
A pixel or segment in an LCD is turned on by an AC voltage applied to it. On a very simple display, such as a 7-segment display, each segment can be driven by its own AC voltage. In such a case there needs to be one connection from the LCD controller to the LCD for each segment. For simple displays with 100 or so segments, this method gives great performance. This is called 1/1 duty cycle, each segment is driven 100% of the time when it is on.
A modest 20×4 character display would require 3200 connections between the LCD controller and the LCD if it were to be driven at 1/1 duty cycle. It is not practical to route that many connections between the controller and the glass.
What is done is called “multiplexing” which combines multiple signals into a single signal and allows pixels or segments to be driven for some fraction of the time. Take the same 20×4 display driven at 1/32 duty cycle and the number of connections comes down to a much more reasonable 132 connections. Essentially, the display is divided into 32 “separate” displays–one per horizontal line. Each line is driven by its AC signal in its turn. That means that each “on” pixel gets driven 1/32 or 3.125% of the time.
The duty cycle indicates how many of these “separate” displays are controlled.
Even More Quick Explanation
Low duty cycle (1/1, 1/2) = better performance but constrained to simpler displays
High duty cycle (1/32, 1/64) = lower performance but allows more complex displays
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