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Dry Rot
"Dry rot" is a fungus that infects cellulose-based materials: wood, paper, cotton and the like.
Sometimes people speak of bicycle tires as if they suffer from dry rot, but this is not generally correct. (The exception would be for cotton-cord tires, but those pretty much disappeared by the mid 1960s, at least as far as clinchers are concerned.)
What people commonly call "dry rot" is a deterioration of the rubber, usually on the sidewalls. This is particularly common with gumwall tires that have been exposed to ozone damage. (A common cause of this is storing a bicycle near a household furnace. The brush-type motors on such furnaces often create sparks, which in turn create ozone.)
This type of damage is ugly, but not structurally significant, as long as the cords (fabric) of the tire are intact.
Generally, if a tire isn't lumpy/misshapen when inflated, and has not had the tread area worn too thin, there is no reason to replace it, no matter how ugly the sidewalls get.
