A diagram theory is an illustration that is used as an explanatory diagram. Just imagine a chalk board with all sorts of drawings of things, showing how they work, at least in theory.
This is a jukugo word, which usually means on'yomi readings from the kanji. If you know the readings of your kanji you'll know how to read this as well.
I'm looking for a textbook with illustrations.
Aya made an explanatory diagram of the in-house Tofugu relationships.
I think it would be easier to understand if there was an illustration with an explanation, what do you think?