Thanks for the replies guys. I always thought that using a diffuser is always good practice as well as it always tries to spread the light more. So most of the time take out diffuser then?
There are usually two "diffusers"... a pull out fold down diffuser, called a wide angle adapter, typically to make a wider flash coverage for a wider lens. And as another option, a snap on dome diffuser. I think you refer to the dome?
The purpose of the dome is, when the flash head is aimed up for bounce, the dome will spill considerable light forward, and in fact, in all directions. The forward spill is much like the pull out bounce card produces (although the dome is brighter). A little of that is good, but too much forward spill just becomes direct flash again (the pullout bounce card is usually better, and does not reduce the bounce either). The purpose of spill in all directions is the idea that this bounces off all the room walls, and back to the subject from all directions, and so provides a softer light on the subject. Maybe if in a pretty small room, but if larger, then thinking out the inverse square law makes it sound impractical, more like wishful thinking.
We should evaluate our pictures, and we should be able to actually see the effect we think we are creating. We should see and know why we do what what we do.
Flash Fundamentals - What hot shoe flashes do shows examples of these units (on the hot shoe). The idea is to see what they do, by the shadows they create.
As for direct flash with the diffuser, it is simply too tiny to have much effect. All diffusion does is to scatter the light. Meaning, from a tiny diffuser, all it can do it go scatter outward, to miss the subject entirely. The idea of "soft" is a larger light, like a three foot umbrella. These are large enough scatter the light inward, toward the subject from different directions, which is what soft is.
Four Flash Photography Basics we must know - Soft Light similarly shows them for off camera flash, the idea being about what is soft light.