What does "diction" mean in poetry? What does my English teacher mean when he refers to a poet's diction?

It is the specific vocabulary that a poet uses.

Say a first-grader writes a poem like, "Roses are red, violets are blue." Then say a professional adult poet writes like, "And both that morning equally lay / In leaves no step had trodden black. "

There is a clear contrast in diction there. The first-grader uses simple, to-the-point diction because they do not know a lot yet and it is an easy rhyme. Robert Frost uses bigger diction because he is an adult and doing more with his poem.

Diction is basically just a fancy word for "vocabulary".