I just tried it with some images I recently shot with a 50/1.8. I'd shot these test images of a resolution chart at various apertures for testing out some software, so I was ready to go!
My conclusion is that, as I suspected, it can't and doesn't remove diffraction effects. It just ads a bit of sharpening. Shots at f22 with "digital image optimization" showed lower resolution than uncorrected shots at f16, which in turn showed lower resolution that f11 etc. f4 is the sharpest aperture of this lens, with or without digital image optimization applied. At f4 without DIO it's sharper than at any other aperture with DIO and much, much sharper than at f16 with DIO.
You can't get around diffraction. There's just no way. If there was, astronomers wouldn't have to build bigger and bigger telescopes to see more detail on bright objects. A tiny backyard 4" reflecting telescope would resolve as much detail on a bright object, like the moon or mars, as the largest telescope in existence. It doesn't work that way.
Digital image optimization is just a fancy term for a process that corrects as many of the image aberrations as possible and ads a bit of sharpening to try to mitigate the effects of diffraction softening, but the effect on resolution is minimal.
Why do Canon talk about diffraction? Probably a mixture of marketing hype and Japanese-English translation!