Dilute means that you start with a concentrated liquid solution and you then mix it with water to a usable concentration. For example, when you add a few drops of liquid fertilizer to water you're diluting the liquid fertilizer.
Generally, diluting will mean that after you dissolve something you will then add water so that it won't be to strong for the plant.
As a general rule, always add the dissolved powder to the water; never pour the water into the dissolved powder.