What is diffraction? In brief; it is an optical term that refers to a loss in image detail. This defect occurs when the light rays are dispersed by the iris in the lens. Therefore, it is more likely to see diffraction when using a smaller the aperture, and remember a smaller aperture is stupidly represented by a higher number such as f/16.
The smaller the aperture, the greater depth of field (more of the image is in focus) you obtain, so if you want the entire composition to remain in focus, it would be wise to use a small aperture such as f/16 and f/22. However, stopping down this far can cause a slight problem to the sharpness of the image, this is where the term diffraction comes into play.
Diffraction occurs when light passes through the aperture of your lens, the edges of the hole disperse the light waves. So the sensor doesn’t receive the all of what it should be receiving. The smaller your aperture, the more amount of light will be diffracted, and in turn, a larger percent of the image becomes noticeably left sharp, which is never a good thing.
This is one of the factors that can take up the price of pro lenses, the engineering with those lenses limits the amount of diffraction, if not remove it all together. The same goes with intermediate DSLR’s. ASP-C and full frame sensors are affected differently. If you are shooting an intermediate camera such as the 550D, you’ll start to notice the effects of diffraction if you stop down beyond f/11.
For a more comprehensive look at diffraction complete with animations check the video below.