Economy of scale is the principle that the per unit cost of producing a good is lower when one produces that good in greater quantity. Diseconomy of scale provides the opposite outcome, that being a higher cost per unit when fewer of a good are produced. This principle is premised upon the idea that there are constant costs associated with the production of goods, for example, the cost of equipment, some minimum human resource cost, utitility costs, and so on. That constant cost, if distributed over more goods, results in a lower cost per unit, while that cost, if distributed over fewer goods, results in a higher cost per unit.
If I am producing metal chairs, I need a plant, with heat, light, and water, machinery to produce the chairs, and people to run the machinery. Supposing that those fixed costs are about $5,000 per month, if I produce 1000 chairs during that month, each costs me $5.00 to make. If I only produce 500 chairs during that month, each costs me $10.00 to make. Assuming that the price of each chair is $15.00, we can see that our profitability is going to improve significantly if we make more chairs, all other things being equal.