What exactly is an anti-dilution protective covenant?

This is not an easy question, but I'll give it my best shot. I think it would be a document intending to protect the investors. In the eyes of the investor, when he/she put money into your business, he/she wants reassuring that you won't be able to completely/ partially dilute his/her stock later on down the road, especially when he/she invested early, when risk was at its highest. Thus, an investor might want you/ the company to agree that if he/she invests today you agree not to dilute his/her stock either at all, or more than an agreed upon amount later on down the road when newer money comes into the company. This is almost always negotiable. For instance, you sell me 10% stock in your company for $100, 000 today. After three years of hard work, done all by you and your team, you grow the company into $3 Million in sales annually. I never helped you at all, after giving you $100, 000. Three years later, a new investor wants to buy 10% of your company for $2.5 Million, but now your valuation has changed (because you went from $0- $3million in annual sales in just three years). Your original anti-dilution agreement with me said that you could not dilute my stock at all. Well, that type of an agreement isn't really fair to you or the company because you guys did all the work, all I did was give you $100, 000. And there is no way the new investor is going to want to own the same amount of your company as me, when he is ready to put down $2.5 million and promises to connect you with all his connections when I only put in $100, 000 and did nothing. So, usually I would imagine that the anti-dilution protective covenant has a release valve so if you need to dilute me later on down the road in order to continue growing the company I can only be diluted to a certain amount, like no less than four times in market value than what I originally put in ($400, 000). After all, I would rather be diluted to help grow the company if I am a smart investor. I would rather own 5% of a company worth $7.5 million than 10% of a company worth $1 Million. Read this clause carefully, it should give you the freedom to grow and allow for future investment, but at the same time give me the original investor the proper compensation for having invested early when risk was at its highest.