Myth: 14-bit raw files are better than 10-bit (or 12-bit) raw files. ("Smoother tonal transitions, more natural gradations, etc.")
Fact: In current Canon cameras, there is no benefit whatsoever, just slower FPS, larger files, and typical Canon snake oil.
This myth is repeated in a lot of Canon's marketing materials. For example, Canon's brochure says: "The EOS 5D Mark II also employs precision 14-bit A/D converters to process the output of the imaging sensor. This ensures smoother tonal transitions and more natural gradations."
- In reality, the tonal transitions and natural gradations are never limited by the raw bit depth, but by noise.
- The amount of noise is determined principally by the amount of light.
- If you are shooting in low light, the amount of light is determined by the sensitivity.
- If you are shooting in ample light, the amount of light is determined by the dynamic range.
- The maximum dynamic range is limited by bit depth.
From this, we can see that there really is a relationship between tonal transitions and bit depth: if you are shooting in ample light and are at the maximum dynamic range allowed by your bit depth, the only way to improve tonal transitions and gradations is to increase bit depth and dynamic range at the same time.
Here is a demonstration of how bit depth relates to raw levels. It's a 40D high ISO image that shows how noise erases the benefit of higher bit depths:
http://thebrownings.name/images/2009-03-bit-depth/John-Sheehy-14-bit-gaborstrapbits.jpg
There is another factor here: some of the dynamic range in Canon cameras is not useful to normal photographers. For example, on the 5D2, there is a about 12 bits of real dynamic range stored in a 14-bit file. But if you use more than 10 bits worth of dynamic range, the shadows will be contaminated by pattern noise. The only people who aren't affected by pattern noise are those who stack multiple photos of subjects that are in the exact same position in every photo, such as astrophotographers. For everyone else, the last four bits are just wasted disk space.
Many of Canon's 14-bit cameras barely have have enough usable dynamic range to justify 10 bits, let alone 12. When Canon upgraded their raw files from 12-bit to 14-bit, all they did was tack on a waste of space. Competitors are really leaving them in the dust now. The Nikon D7000 and Pentax K-5 both have true 14-bits worth of usable dynamic range, and they are a lot cheaper than the 5D2, 1D, and 1Ds which all have less than 12 bits of usable dynamic range.