To create a hotspot in Pokémon Diamond, players need to navigate to the Union Room in the game and select the 'Start Hosting' option. They will be given a Friend Code, which they can then share with other players who are also trying to connect.
Once connected to a hotspot, players can access various multiplayer features, such as trading Pokémon, participating in battles, or interacting with other players' avatars. Hotspots allowed for increased player interaction and social experiences within the Pokémon Diamond game.