The diamond file is for taking burrs off the edges after hitting a rock or something.  When the edge hits a rock, it hardens the metal and your files won't work, you need a harder file, ie; diamond file.
I think what you're talking about is a gummy stone.  After you get done filing your edges, you can cut your hands on them because they're still sharp and they have burrs.  Run the gummy stone on the edge and it will stay sharp, but remove burrs so you can run your thumb down the length of the edge without slicing it.
Peace.