Diction is a literary term meaning word choice. We all use diction, in the sense of choosing certain words rather than other words, whenever we speak or write. When literary critics talk about diction, they are thinking about how either specific word choices affect tone or make judgments. For example, calling a friend "fat" would be rude and negative, but "curvy" would be positive and more polite. Your diction, or choice of the word "fat" vs. "curvy" tells a reader or listener a great deal about your attitude towards the person.
The first major distinction is between speech in prose and in verse. Shakespeare will sometimes use prose for ordinary or casual conversation, but often verse for more important or emotionally heightened passages.
In Act IV, Juliet, a young girl overcome by emotion, uses diction quite distinct from that of Friar Laurence, an older and far better educated man. For example, look at Juliet's lines:
O shut the door! and when thou hast done so,
Come weep with me; past hope, past cure, past help!
Every single word in these two lines is a monosyllable. The syntactic units are short; the final "past, hope, past cure, past help" uses the rhetorical device of asyndeton, often recommended as a way of expressing strong emotion.
Although Friar Laurence sympathizes with Juliet, his diction is far more moderate or measured:
It strains me past the compass of my wits:
I hear thou must, and nothing may prorogue it,
On Thursday next be married to this county.
He uses more ornate vocabulary ("compass", "prorogue"), and longer, more complex syntactic units, with a more balanced and complex clausal structure. His choice of words and syntax projects a more reflective character, less impulsive and more emotionally restrained than the young girl, as is appropriate to his age and priestly vocation.