Using Good Diction
Diction is just a fancy way of saying 'word choice.' That is, when someone tells you that you have 'good diction,' they're saying that you have a good vocabulary and you use it well. Having good diction is an essential part of writing well, no matter what kind of writing you're doing. Diction is the key to developing your style, tone, and point of view.
Don't Use Uninteresting Words
Whenever you can, try to replace boring words with more interesting (and descriptive) ones. Take this sentence:
'James Blonde's good plan helped him win against the bad guy.'
That gets the information across, but it doesn't pop. Let's target these words: 'good,' 'plan,' 'win,' 'bad,' and 'guy.' Instead of the adjective 'good' we can substitute in 'cunning' (which means clever), instead of the noun 'plan' we can say 'strategy' (which has a similar meaning but implies more action), instead of the verb 'win' we can say 'defeat' (which is more dramatic), and instead of 'bad guy' we can say 'villain' (which sounds more threatening and thus makes James Blonde's victory more epic).
So what are we left with? 'James Blonde's cunning strategy helped him defeat the villain.'
Make just a few small changes in word choice and the sentence now has much more zip. However, that doesn't mean you should replace 10-cent words with 10-dollar ones just because you can. That's to say, just because a word sounds fancier (e.g. it 'costs more') doesn't actually make it better. For instance, 'James Blonde's dexterous machinations abetted his vanquishment of his disputant' is full of big, heady words and is also confusing and totally awful. Good diction requires you to strike a balance between the dull and wordy while still sounding natural.
Specific Details Are Better
Replacing boring words with more interesting ones is good; replacing vague words (which are usually boring, by the way) with more specific ones is even better.
'It was a nice day. There were lots of things to do and people to see.'
Those are two boring, vague sentences. It was a 'nice' day, according to the author, but nice how? What things were there to do? What people are you seeing? Remove the vague words and replace with descriptive details and you'll have a superior sentence.
'It was a beautiful, partly sunny day. There were many sports and games to play and friends to meet.'
While this still isn't the most exciting sentence in the world, it at least tells us something now. We know exactly what kind of nice day it was (beautiful and partly sunny), what kinds of 'things' the writer is looking forward to, and what people he or she is going to see. If you always favor the specific over the vague in your word choice, you'll have won half the battle of good writing.
Avoid Repetition
This is more of an editing tactic, but good style usually means varying your word choice and avoiding repetition. Consider a paragraph that reads like this:
'One example of an awesome dinosaur is the velociraptor, while another example of an awesome dinosaur is the T-Rex. In a fight, these two dinosaurs would pretty much beat every other dinosaur, although a T-Rex would obviously beat a single velociraptor easily because of its superior size.'
Here we have 'example' twice, 'awesome' twice, and 'dinosaur' three times, and 'beat' twice. Eliminate unnecessary repetition by removing words if they don't add anything and replacing others with synonyms to make them more interesting for the reader. Here's what we did:
'One example of an awe-inspiring dinosaur is the velociraptor, while another is the T-Rex. In a fight, these two beasts would pretty much beat every other prehistoric lizard, although a T-Rex would obviously defeat a single velociraptor easily because of its superior size.'
The fixed, non-repetitious version now sounds not only more interesting but has more authority.