all paid up!, page-5

"Who loses? Every existing shareholder loses, because their 0.0010 % of the company just became 0.00066. This is what is meant by "dilution". It's a literal description, not a metaphor. By creating new shares, the company is reslicing up ownership into a greater number of necessarily smaller pieces."

Actually whilst that's generally true with external capital raisings it is not the case with a rights issue (nor an issue of options), as under a rights issue the shares are offered to existing shareholders. Shareholders who participate in the rights issue continue to retain the same percentage ownership (albeit they have paid for the new shares, but then the company is also worth more as a result) of the company.