Diaspora* is a federated open source social network. It does not have a protocol specification or an API for app support/integration. Diaspora* is not intended to be run as one server/user, but by clustering users on pods with pod administrators, etc.
Reading the API docs, it seems that every user needs their own URI to be uniquely identified. I wonder how this will work with the average user, just IP address? What about users with shared internet?
You're correct-- we anticipate users either registering their own domains (i.e. http://danielsiders.com) or using a hosted service that provides subdomains (http://danielsiders.tent.io). If you're hosting at home (dream solution here is plug computers), then dynamic DNS pointing to your home IP/computer.
This was the mistake Open ID made, which they later realised complicated things way too much for the average user. Regular users want to identify as an email address, not a URI.
Diaspora is mentioned in the article in the "What about the federated social web?" section. Apparently it is more decentralised than Diaspora. Although I can't see what that means at the moment as implementation details are fairly sparse.
Diaspora and some other platforms are federated communities - in other words, they federate between collections of multiple people. Here, the decentralized social activity occurs between individuals. It's decentralized all the way down.