A light diffuser is anything that spreads out the light to cover a larger area or space than it would otherwise. The point is to make the light source bigger relative to the subject – the bigger the light source is relative to the subject, the softer the light is.
If you shoot with flash sitting on your camera, a way to diffuse the light is simply to point the flash upwards or sideways, away from your subject, and let it bounce on the ceiling or wall, so these are now your light source and not the flash itself. You can also get a little white cap to put on your flash that in itself enlarges the area of the flash light, in case you don’t want to loose so much power in the light as you do when you bounce it against a wall.
If you are outdoor shooting at noon on a cloudless day, the sun makes very hard light, i.e. the transition from light to dark happens very suddenly and you only have extremely light and extremely dark and very few shades in between. If you diffuse the light from the sun by hanging a big white sheet between the sun and your subject, you will find that this diffuses the light greatly as the light source is now the entire sheet rather than a very, very small dot very far away (also known as the sun!).
Related reading
What is hard light vs soft light?
What is TTL in flash photography?
