A diffuser is any material that scatters light as it passes through it. Light from a diffuser falls on the subject from many directions, so shadows become softer and contrast is lower. A diffuser also reduces the light a little.
Photographers often use diffusers with flash units and studio lights, for example a softbox or a piece of white fabric. In nature, clouds act as a large diffuser. This is why light on an overcast day is soft and even.
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