Why manual comparison misses things
Reading two versions of a document side by side and spotting every change by eye works fine for a sentence or two, but it breaks down fast as length grows — a single word swapped mid-paragraph, a line quietly deleted, or a sentence reordered are all easy to miss when your eyes are scanning for differences rather than mechanically checking every character. This isn't a matter of carelessness; it's simply not something human attention is well-suited to at scale, especially when the two versions are similar enough that most of the text matches and only a small fraction actually changed.
What a diff tool actually does
A text diff tool compares two versions line by line and works out the smallest possible set of additions and removals that explains the difference between them, using an algorithm related to the one that powers Git's diff view and most version-control tools. Rather than naively comparing line 1 to line 1 and line 2 to line 2 — which would falsely flag every single line as changed after just one line gets inserted somewhere in the middle — it aligns the two texts first, so an insertion or deletion only shows up as exactly that: one addition or removal, not a cascade of false positives through the rest of the document.
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Reading the output correctly
Diff output is typically color-coded: lines only in the original are marked as removed, lines only in the new version are marked as added, and matching lines are left unhighlighted. Because most diff tools compare at the line level, a single word changed in the middle of a sentence shows the entire line as both removed (the old wording) and added (the new wording), rather than highlighting just the one changed word — that's expected, standard behavior, not a sign the tool is being imprecise. If a whole paragraph was reordered rather than edited, it typically shows up as a removal in its old position and an addition in its new one, since most line-based diffs don't have a dedicated "moved" indicator.
Where this is genuinely useful
Writers and editors use it to see exactly what changed between draft revisions, without needing both people to be using the same word processor's tracked-changes feature. Developers compare two versions of a config file or a plain-text data export outside the context of a full code repository. Contract and legal reviewers use it to catch subtle wording changes between agreement drafts that a manual read-through can miss — a single altered number or a quietly removed clause is exactly the kind of change a diff tool catches reliably and a tired reviewer might not. Students and researchers use it to check how much a paraphrased passage genuinely differs from a source, which is a more precise check than eyeballing similarity.