Multiway Relay Dimmer
You could use a rotary encoder for that purpose!

Basically the rotary encoder is a knob that, for every "tick" you give it, it returns a different value to your Arduino. With a bit of programming you can sense the direction of the turn, if it is positive then you lighten up the LED, and vice versa.

I used that to control a RGB led, it works very well! here some more information on the rotary encoder and the code needed to use it.