What is diction in literature?

Diction is an author's choice of words that he/she uses to create a particular tone or effect.

This means the author uses specific words so that "imply" different things - even if the words technically have the same meaning.

For example, think about the differences between the implied meaning of these sentences:

That is a strong smell.

That is a strong fragrance.

That is a strong odor.

Kinda different image you get, huh?

Or:

That girl is pretty.

That girl is hot.

That girl is glamorous.

That girl is sexy.

Different pictures, right? Just by changing one word. And if you look at the words that are changed, they're all synonyms.

So in Mockingbird, I would expect diction to be the different ways the characters talk and describe certain things - their choice of words (for example, Atticus as sensible vs. the Ewells as without class) can tell you about their character.

Sensory imagery can just be one sense - although it can't just be "It was red" - even though red is a sense word (seeing). It has to be descriptive and give you a picture of what is going on.

Sensory imagery can be just one sense. A description of a smell or a sound is sensory imagery.

Diction is, yes, the choice of words. You aren't supposed to "find diction"; every word in everything ever spoken or written is an example of diction. What you're supposed to find is word choices that are significant to the story. For example, does some character refer to a lawyer as an "attorney" or as a "shyster" or "mouthpiece"? The different words for "lawyer" convey totally different messages. Or, in TKAM, what words do different white characters use to refer to black people? That's very significant too.