To defuse means to reduce the tension or danger in something. This could be a physical something, like a bomb, or a less concrete thing, like an argument or a situation. “To defuse the fight situation that was building up, Tom jumped forward and kissed Dave on the nose.”
To diffuse means to spread out over a wide area. It’s what one of those room scenter things does, in the concrete form. Again, there’s an abstract – you can diffuse an idea and help it spread around the world. Diffuse, the noun, means spread out over, well, a wide area. The group of people from Kent was diffuse now, a few in each neighbourhood. The adjective can also mean lacking in clarity: “That was a bit of a diffuse argument you presented there” – the sense is carried over in the idea of it being all over the place, spread out, rather than precise and targeted.
If you defuse an idea, you render it harmless, eliminate it. Fewer people will hear about it. If you diffuse it, you spread it to more people.