Right... this is from my physics class more than 6 years ago... I guess it applies to photography as well.
What makes a flash work? It's small, light and powerfull... Being small, most of the light will 'exit' from a small point, and this small point will create harsh shadows as most of the light originates from similar point. A bounce card fix this by enlarging the source of the light.
But bounce flash? In terms of bouncing off a ceiling, firstly it enlarges the light source before hitting the subject and at the same time, it eliminates that shadow behind the subject, making them look more natural. And with top illumination, its also more natural as it looks like illumination from an overhead lamp.
Enlarging the source of light also reduces hots spots and spread the light more evenly in the frame, reducing occurence of over exposure (I guess). Below are some examples:
The above image is shot with a direct flash. Note the harsh and unnatural shadow on the wall behind the figure.
The image is shot with a bounce card with angled edges. The scene appears more evenly illuminated and the shadows are less harsh... but it's still casted onto the wall...
With the flash now bounce off a ceiling, the image looks brighter and has the effect of an afternoon sun beating down on the soldier pressed to the wall.
Changing the andle of bounce and position of it, other effects can be achieved, here, the angle is brought down a little and the face is better illuminated, but the overall effect is different.
Me no know about diffuser... I guess it weakens and spreads out the light...