Diminished means lowered or reduced. A diminished triad, for example, is a triad which contains a root, a minor third, and a diminished fifth – in other words, a root with two minor thirds stacked on top (or a minor chord with a flattened 5th). For example, B dim = B D F (there being 3 half-tones between the B and the D, and another 3 half-tones between the D and the F). Likewise, F♯ dim = F♯ A C.
In practise, the diminished triad is considered dissonant (see dissonance) and unstable because the diminished fifth splits the octave right down the middle. In a major scale, a diminished triad always starts on the seventh degree of the scale because of the way intervals are laid out in a major scale.
Diminished triads are not the most attractive-sounding of chords and are not used very often. More commonly used is the diminished seventh, also called the full diminished, which adds a double flattened seventh (equivalent to a sixth) to the basic triad. This results in a chord in which each note is separated from the next by the interval of a minor third. The chord can resolve in any number of directions, and was prized by Romantic composers for its versatility, its ambiguity, and, in dramatic contexts, its somewhat dark, threatening sound.
The other diminished chord of note is the half diminished, or minor 7 flat 5. This is the same chord type as the ordinary minor seventh but with the fifth scale degree flattened.