When light is passed at the edge of an object, it slightly scatters. when It is termed as diffraction. The object here is the aperture blade of the camera lens, which scatters the light.
This scattering happens at all aperture settings, but the intensity of scattering depends on the ratio between the wavelength of light and aperture opening. When aperture opening is larger compared to wavelength of light, the scattering is minimum but as we stop down to smaller aperture, the scattering is visible.
This scattering also occurs in nature, when the sunlight is passed through a cloud. Water droplets in a cloud bends and scatters the light, resulting a diffused soft light.
Scattering of light in camera makes the image softer and slightly out of focus. Fine definition at the edges and details in the texture is lost, though depth of field is increased with the use of smaller aperture. All of other lens defects such as chromatic aberration, distortion, spherical aberration and field curvature are minimized when we use a small aperture but diffraction is increased.
This problem has no solution but to compromise between other lens faults, depth of field and optimum sharpness. Most of lenses perform at their best when we use two or three stop wider opening from smallest aperture. This means that if the lens has smallest aperture of f 32, the best compromise is at f 11 or f 16. Similarly, a lens with smallest aperture of f 64 will work best at f 22 or f 32. Though problem of scattering is there, but other lens faults are reduced.
However, if the maximum depth of field is our prime consideration, then we will have to use smallest aperture. In such case, fine details are lost but extended focusing range is achieved, which might be required in architectural and industrial photography.
Read about these lens faults in detail:
Blur or defocus of lens: Blurring of an image due to lens fault
Chromatic aberration: How chromatic aberration or distortion affects the image quality
Field curvature: Field curvature aberration of a lens
Lens flare: How to take care of a lens flare
Loss of contrast: How ability of capturing contrast of a lens is lost
Optical distortion: Physics of optical distortion and how to check it
Spherical aberration: Optics of spherical and asherical lens
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