In Europa Universalis II, diplomats are a kind of state agent that are required to perform most diplomatic actions. One diplomat is expended each time you make a diplomatic action, regardless of its success or failure. For diplomatic annexations there is a special rule. You need one diplomat to perform the action, but a successful annexation will not remove the diplomat.
Normal diplomat generation happens at the start of each month: a country will either gain no diplomat that month, or it will gain one. If you hover over the diplomat icon at the top of the screen, you'll get a tooltip showing the yearly number of diplomats you get, and the breakdown according to the following factors:
|+1 to +5||Royal diplomacy||+1 per point of monarch's diplomacy skill above 6|
|+0 to +2||State religion||+1 for Reformed/Protestant; +2 for Catholic/CRC|
The maximum rate is thus 9 diplomats/year, for a super-diplomat Catholic monarch at war. The minimum, which is often seen when playing non-Christian countries, is 1 diplomat per year, or 2 per year when at war.
A maximum of 6 diplomats may be stored at a time.