Working principle of decoupling capacitor

A decoupling (bypass) capacitor, usually 0.1 uF ceramic, is connected between the supply and ground pins of an IC, as close to it as possible. When the IC switches, it needs a sudden burst of current. The distant supply cannot provide it quickly because of trace inductance (V = L·di/dt), which would cause supply dips and ground bounce. The capacitor acts as a local charge reservoir, supplying the transient current, and also provides a low-impedance path to ground for high-frequency noise on the supply, keeping the supply voltage stable.