Diversification is just about investing in a set of assets with varying levels of risk/return rather than fully investing in one type of asset. You can also diversify within an asset class. For example, when investing in shares, to diversify means to have a share portfolio spanning several companies than just 1 or a few companies.
A typical portfolio balances stocks and bonds (primarily government bonds), where the allocation to bonds is used to match your risk tolerance. Bonds tend to be a lot more stable over time than stocks, however the price is lower expected return. For example, a 50-50 split between stocks and bonds represents someone with lower risk tolerance while a 90-10 split between stocks and bonds represents someone with higher risk tolerance.