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Q: Please tell me how you can claim this is "all natural" vanilla extract when it clearly also says it is "imitation" vanilla?

"All natural" is a term often used to describe artificial flavors that are created from a small amount of a natural source --perhaps a small scraping of natural cinnamon from tree bark or a smidge of vanilla bean paste-- used to recreate (via chemistry) the natural flavor of the source material. So, saying "natural flavor" can still refer to "imitation". For truly natural, non-artificial vanilla, what you need to look for is anything saying "PURE vanilla extract". It's exponentially pricier, but worth the money. Hope this helps!

Q: Can you put this in a diffuser

I think yes. The primary ingredient here is Vanillin. Vanillin is the pure chemical form of vanilla terpenes without the other terpenes from the oak and bourbon getting in the mix. It has a tendency to taste like marshmallows without the aged oak and bourbon. I put this in carrier oils to make body products, and I sometimes warm the infused oils over a flame to enhance the room. It works well - I don't see why one couldn't put it a diffuser, but one might need to dedicate the diffuser to it. It isn't going to leave easily, on it's own. I love and prefer the smell of vanillin for scents, but I prefer the taste of vanilla --with it's other complexities of aged bourbon and barrel. Those are yummy flavors, but traditional bourbon vanilla extracts don't work well in scents. There is a famous story about Vanillin and one of the worlds most famous Perfumers, M. Guerlain. in 1925 he received, for the first time from his chemist, a brand new chemical-- a vile of pure Vanillin. It is said that he dumped the entire vial into a bottle of his primary offering, Jinky, and voila! Shalimar was born! Shalimar remains one of the most precious and well loved perfumes to this day. The scent of it is often referred to as a "dirty vanilla." But that is another story maybe not appropriate for this review. Pure chemical essences have long been used for their aroma by the worlds most famous noses. I find these clear extracts work well for making body scents. When I wear them the room smells like something good to eat. Hope this helps.