Diluyendo comes from the verb diluir, meaning "to dilute" or "to dissolve". It's a less common word in everyday conversation, making it stand out in the lyrics.
In the song, it's used to describe how a dream "se va diluyendo" (is dissolving or fading away), painting a vivid picture of a hope or illusion slowly disappearing. This metaphorical use adds a layer of poetic depth to the heartbreak expressed in the song.
Paty Cantú builds the whole song around one sentence: "Ya no soy felíz contigo, mi amor, lo siento" ["I'm not happy with you anymore, my love, I'm sorry"]. She doesn't argue with it. She sits across from the person who said it and answers with a lie, "No te sientas mal por mí, creeme, yo te entiendo" ["Don't feel bad for me, believe me, I get it"], then smiles like nothing happened, "tan amigos como siempre" ["still friends as always"]. The title is the instruction she keeps giving herself to get through the conversation: "Vuelve a respirar" ["Breathe again"].
The lines that give the song away are "Te vas rompiendo en pedazos mientras que se va" ["You're breaking into pieces as he leaves"] and "Y nunca lo sabrá" ["And he'll never know"]. That's the trade she's making: hold it together now, in exchange for him never finding out what it cost her. It's a breakup song about performing calm, not feeling it.