The diagram is what is known as a blackbody diagram. It is a graph showing how much of each wavelength of light an object produces. In a blackbody diagram, it is assumed that the object does not reflect any light, and that all of the light is emanating from it. Blackbodies do not necessarily look black. Stars are pretty good blackbodies, since they are not very reflective.

 Image credit: khadley.com

You can think of a blackbody spectrum as being analogous to a collection of bins of colored light bulbs. Each bin holds a different color, and some bins have more bulbs than others. In the above bins, the green bulbs outnumber the other colors. A blackbody spectrum similarly shows the relative abundance of different colors of photons, or different wavelengths of light. The peak wavelength gives a measure of the surface temperature of a star. The shorter the wavelength of the peak wavelength, the higher the average surface temperature of the star.

The above blackbody diagrams depict stars with two different surface temperatures. Notice that the higher temperature star has a shorter peak wavelength. The equation below the image is known as Wien's law, and gives the relationship between the surface temperature of a star and its peak wavelength.

The above graph shows what a real blackbody spectrum of a star looks like. Notice that the edge is very jagged, not a smooth curve. We will learn about the reasons for this when we study our next topic, spectroscopy.

Orion with red giant Betelgeuse. If you look closely, you will see that some of the stars look redder than others and some look bluer. The bluer stars have higher surface temperatures.

Luminosity is how much light a star produces; it can be thought of as how much energy a star generates. Brightness is how bright the star looks to us. The brightness equals the luminosity divided by the surface area of the sphere with a radius at distance d.

Image source