Diffraction is an effect on waves when encountering an obstacle or slit. For example, when light wave hits the edge of something, some of the light is redirected around the edge.
Diffraction affects the resolving ability of telescopes, such that the larger the opening, the smaller an object can be resolved. A telescope is said to be Diffraction Limited if all its other optical properties are good enough that diffraction is its main limitation in resolving images.
Diffraction also affects Particles as per Quantum Mechanics' particle/wave duality.
Theories/models of diffraction include:
Refraction, on the other hand, is the change in direction of a light ray as it passes between two materials with different densities and is the mechanism of lenses.