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The diary of Tom Riddle is a fictional magical object that appears in Harry Potter and the Chamber of Secrets. Harry Potter and Ron Weasley find the diary in Moaning Myrtle's bathroom and Harry becomes convinced that the diary, with its seemingly blank pages, is not all that it appears. He eventually discovers that to work the diary one writes in it, and Tom Riddle, a student at Hogwarts fifty years ago, writes back.
Spoiler warning: Plot or ending details follow.
Unknown to Harry and his friends, Tom Riddle grew up to become evil Lord Voldemort. He opened the Chamber of Secrets, and framed Hagrid for the attacks. Since it wasn't safe to open the Chamber again, with Albus Dumbledore keeping an eye on him, Riddle created the diary. The dangerous book had found its way into the hands of Death Eater Lucius Malfoy who had then passed it to Ginny Weasley in order to discredit her father, Arthur Weasley.
Ginny "pours out her heart" to the diary and grows to love Riddle, calling him the only one to understand her. However, Riddle grows strong enough to possess her, and forces her to open the Chamber of Secrets again. Ginny, who loses her memory whenever someone is attacked, begins to believe that she is responsible and fears for her sanity. Her already unstable life is filled with further emotional trauma. Note it is not clear why Albus Dumbledore did not detect this with legilimency.
Ginny eventually becomes suspicious of the diary and tries to destroy it. This is when Harry Potter gets hold of it, and Riddle, who had heard how Harry defeated his future self as a baby, tries to gain Harry's trust by showing him his capture of Hagrid. This doesn't work, and Ginny spots Harry with the diary. Fearing that Riddle might repeat her secrets to Harry, she filches the diary from Harry's dormitory. This causes Harry and his friends to become very puzzled as only a Gryffindor could get inside Harry's dormitory. Apparently, Ginny could not resist the diary's insidious powers, as she continues to write to Riddle.
Eventually, Riddle absorbs enough of Ginny's life-force to emerge from the diary, leaving her unconscious in a state he describes as "still alive, but only just". Ginny's disappearance successfully lures Harry into the Chamber, but Riddle fails to kill Harry. Harry destroys Riddle, and saves Ginny, by destroying the diary.
It was noted, by Arthur Weasley soon afterward, that one way to tell if any object has been filled with Dark Magic, is to see if it can think for itself, but it is not apparent where it keeps its brain. This standard has been used many times afterwards in the series. Harry is originally skeptical of the Marauder's Map due to this, but he rationalizes its use with flawed reasoning. This also explains why an object such as the Sorting Hat is not dangerous. Arthur Weasley gets upset with his daughter for not recognizing the tell-tale signs that the diary was dangerous, but it is worth noting that this never crossed Ron or Hermione's minds either.
In order for Riddle to gain the power to possess Ginny, or whoever might be using the diary, that person must write to him. It appears they must write to him on a regular basis and for a long period of time before they can be possessed. Harry, who writes to Riddle only once, is, thus, not in any danger. It is interesting that Harry chooses not to write back to Riddle for more information, when he is clearly stumped about validity of Hagrid's guilt. In retrospect, this was a wise decision.
Riddle's diary has an ability, similar to that of a Pensieve, to take someone back in time in a memory, so they can witness an event in a magical virtual reality simulation. Riddle uses this ability of the diary to show Harry, Hagrid's capture. It is unknown whether Ginny was ever taken inside any memories while the diary was in her possession.
To author J. K. Rowling, a diary is a very scary object. She said in an interview that "the temptation, especially for a young girl, [is] to pour out her heart to a diary." Rowling's sister was prone to this, and her great fear was that someone would read her diary. This gave Rowling the idea to have a diary that is, in itself, against the confider.
The diary is similar to many objects in the Harry Potter series, and many works of fantasy, science fiction and countless other genres, in that it is a small unassuming object with extraordinary powers.