To make a short story shorter. I have a potentiometer hooked connected from 5V to ground with the wiper connected to an ADC pin on an Arduino. I am getting some chatter in the readings which I would like to smooth. Am I best off averaging X readings from the ADC or could I place a cap to ground on the wiper to steady the input voltage?
The filter cap is the easiest thing to try quickly, but the filter corner frequency (and hence the filter's effectiveness) will change with the pot rotation. A software LPF will give more consistent performance, after you work out the program and verify that it works.
The signal is just the input from the wiper from a potentiometer hooked from 5V to ground. It's purpose is to act as a (cheap) retentive setpoint input.