Deep litter bedding should be neither too wet, nor too dry:
http://www.thepoultrysite.com/articles/388/litter-quality-and-broiler-performance
"Excess moisture in the litter increases the incidence of breast blisters, skin burns, scabby areas, bruising, condemnations and downgrades. The wetter the litter, the more likely it will promote the proliferation of pathogenic bacteria and molds. Wet litter is also the primary cause of ammonia emissions, one of the most serious performance and environmental factors affecting broiler production today. Controlling litter moisture is the most important step in avoiding ammonia problems.
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Litter that is too dry and dusty can also lead to problems such as dehydration of new chicks, respiratory disease and increased condemnations. Ideally, litter moisture should be maintained between 20 to 25 percent. A good rule of thumb in estimating litter moisture content is to squeeze a handful of litter. If it adheres tightly and remains in a ball, it is too wet. If it adheres slightly, it has the proper moisture content. If it will not adhere at all, it may be too dry. "
You want the poo/feather bits/etc. to become part of a living micro-ecosystem, not rot in an excess of water, and not become an airborne pathogen in dust.
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Plamodon explains the disease fighting and nutritional benefits of deep litter, and says "Deep litter must be combined with a fresh-air poultry house.":
http://www.plamondon.com/faq_deep_litter.html
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Another good description of how deep bedding works:
http://www.microecofarming.com/html/10-backyard chicken coop.htm
"- Look for the deep litter to start becoming a living, decomposing, composting organism that absorbs manure rather quickly. At this point, only add more dry matter when manure seems to build up too much.
- Now, the deep decomposing bedding begins to feed the chickens with organisms living within the debris which include beneficial fungi, slugs, worms, pill bugs, earwigs and other insects, beneficial microbes and soil pro-biotics. Further, when chicken coops have flooring that's deep and living, they're fed throughout the winter because the action of the decomposition makes the deep litter stay warm in winter to keeps chickens fed and more comfortable.
- Go ahead and toss the crushed oyster shell over the top of the litter. Other chicken foods such as kitchen scraps, fresh greens, sprouted grains, dropped orchard fruits, garden leftovers and so on can be tossed on top as well. These get the chickens scratching and add to the litter itself. Just realize these are considered "wet" components as is the chicken manure, only not as hot. You don't want more wet than dry. So, watch closely to make sure your initial deep dry litter is in balance to create the living composting situation you want vs. a wet and messy chicken coop floor. If need be, you can add more dry matter anytime."
