AlexQ Thank you for your reply! I will try to answer your questions:
a) For me, this is only relevant to Rich Text. I suppose tracked edits like I showed in the screenshot could be classified as diffs, but I think they are different too: diffs are generated by comparing two versions of code. The second version is usually created by a coder who runs tests and experiments, then generates a diff. In the context of document co-authoring, changes are no transactional/atomic like that. I might correct a spelling error here, and add a sentence there, as I read through the doc, and I want to change these "right there". Tracking my changes and then highlighting those changes makes it easier for others to follow these modifications.
See how for each change, author and timestamp are tracked and available by hovering over a change?
b) My Screenshot was made with Libreoffice. Here, indeed, you get a random colour assigned so that when multiple people make changes, these appear with different colours. I am pretty sure there is a way to assign colours such that they don't conflict with existing colours in the document. One could look into how Libreoffice does it.
c) It would be possible to extend the history function to be able to visualise the differences between two points in time in the history of a document.
However, this would actually not quite get us to Tracked Changes like Libreoffice allows. Because in Libreoffice, making a change while Tracking is on is also a bit like making a suggestion. In the above screenshot, I "suggest" to replace the word "text" with "poem". Anyone editing the document can right-click on the change and accept or reject it:
Moreover, there is a "Manage Changes" dialog allowing me to browse all changes, and accept/reject them individually, or altogether:
Does this clarify things a bit? If not, here are two links that explain the functionality in Libreoffice a bit more:
Regarding your "personal opinions":
I am indeed talking about the Rich Text editor. If that is on its way out and eventually, the Doc app from OnlyOffice will replace it, then all good, because Doc can already do it:
Yes, I think this could also be beneficial to the Markdown editor, which I love using (but I deal with less technical folks, so it's not an option for us). Note that Etherpad does highlight additions, but cannot do deletions last I checked.