In short: diversification means spreading money across different investments — companies, countries, asset types, time frames — so that the failure of one of them does not take everything.
Simply put: The idea comes from Harry Markowitz (1952): the risk of a whole portfolio also depends on how the investments move in relation to each other. What matters is that they behave differently, not simply that there are many. Diversification reduces the risk of a single failure, but it does not remove market risk — in a general fall most things fall together.
Example: €1,000 in one company that goes bankrupt means a loss of €1,000. If the same money is in ten unrelated investments of €100 each and one company fails, the loss from it is €100.
Watch out: many things that fall together are not diversification. Think also about what you hold outside the portfolio — your job, home, pension — that is exposed to the same risks.
Source: Markowitz, H. (1952), Portfolio Selection, The Journal of Finance 7(1): 77–91 — https://doi.org/10.1111/j.1540-6261.1952.tb01525.x