1. Bad ground. Make sure the ground connection on the gauge is connected to the same spot as the car battery ground to ensure you have a good ground. Do the same for the sensor (the gauge and the sensor need to have a good common ground).
2. Externail noise. Noise introduced from routing the signal wire close to a high voltage electric source (i.e. spark plug wire, ignition). Make sure your signal wire isn't picking up any noise.
3. Bad or incorrectly installed sender. Ensure your sender is operating correctly and it producing a good signal.

If you are still seeing some noise after checking the above items, try adding a 0.05uF (micro Farad) or 0.1uF capacitor across the input to ground. If signal noise is the issue, this will help filter out any signal noise and smooth pointer response.