Putting all your money into a single stock, a single fund, or even a single asset class is a bit like building a house on one pillar — it might hold up fine for years, until the one thing it depends on fails, and then everything goes down with it. Diversification simply means spreading your money across different types of investments, so no single bad outcome can take down your whole financial position.
Here's a concrete picture. If your entire investment portfolio is one company's stock and that company has a terrible year, your entire portfolio has a terrible year. Spread the same money across, say, twenty different companies through a mutual fund, and one company's bad year barely dents the total — the other nineteen are doing their own thing, and on average, things tend to even out far more smoothly.
Why this is sometimes called the closest thing to a free lunch in investing: most strategies require giving something up to gain something else — more risk for more return, more effort for better timing. Diversification largely doesn't ask for that trade-off; spreading your money around generally reduces risk without proportionally reducing expected return, simply because you're no longer dependent on any single outcome going your way.
The practical version: rather than picking individual stocks and hoping, a diversified mutual fund or index fund automatically spreads your money across many companies or assets in one purchase. You don't need to predict which single investment will win — you just need broad exposure, so the inevitable few bad performers get balanced out by the many that do fine.