To use this tool, simply have it on you while walking around in the bottom layers of the overworld. It will change colors based on how close you are to diamond ore. It is best to keep it in your quick-bar, but it will update as long as it is in your inventory.
1 Block away (practically looking at it):
2-3 Blocks away:
4-5 Blocks away:
6-8 blocks away:
9+ Blocks away (no diamond ore close by):