ITY knit stands for Interlock Twist Yarn. It is a method of putting a twist in the yarn resulting in a more natural elasticity and a soft feel inside & out. ITY knits are easy to sew with and quite popular for tops, dresses, skirts and flowy pants. They come in a wide array of prints and solids. It's great for traveling too because it does not wrinkle.
DTY knit stands for Drawn Twist Yarn. It is similar to ITY knit but has a smoother surface. It is also a touch heavier than ITY knit.
Sometimes we come across FTY knit, which stands for false twist yarn. It is similar to an ITY knit but it is thinner and may require a lining.