What a diff actually shows you
A diff is not a character-by-character comparison. It works out the longest sequence of lines the two versions still have in common, and everything outside that sequence is what changed. That is why moving a paragraph shows up as one deletion and one addition rather than as a hundred tiny edits — the tool is describing the shortest way to get from one version to the other.
Line diff and word diff
Most changes are edits to an existing line rather than wholesale additions. When a removed line and an added line sit together and look like two versions of the same sentence, this tool compares the words inside them too, and highlights only the ones that moved. A typo fix then reads as a typo fix instead of as a rewritten paragraph.
The whitespace trap
The most common reason a comparison comes back looking like nothing matches is invisible: a file saved on Windows ends its lines with a carriage return and a newline, while one saved on macOS or Linux uses only a newline. Nothing on screen looks different, but every single line differs. This tool normalises line endings before comparing and tells you when the two sides differ by whitespace alone, so you know to reach for the toggle rather than assume the worst.