The Downsample effect module lets you change the number of bits that are needed to define a single sample in a sound.
You can only do this on the whole document, not just on a selection or on some channels. If you try to run the effect when a portion of the sound is selected, you will be asked if you want to downsample the whole sound.

Usually, you will want to downsample from 16 bits to 8 bits, to save disk and memory space for a small decrease in sound quality.

You also have the option to apply Dither or Noise Shaping to the sound before downsampling. These are two processes by which a small amount of noise is added to the sound, in such a way that downsampling doesn’t produce much distortion (which would be quite disturbing).