What does the "diff --git" output in "git diff" refer to?

The --git is to mean that diff is in the "git" diff format. It doesn't refers to and option of the /usr/bin/diff command You can find the list of diff format documentation. Other formats are:

• diff --combined
• diff --cc
• diff --summary

It's an "imaginary diff option", used to indicate to the reader that it's not just the output of running the diff command. For example, in git's own git repo:

$ git diff HEAD~1..HEAD | head
diff --git Documentation/git.txt Documentation/git.txt
index bd659c4..7913fc2 100644
--- Documentation/git.txt
+++ Documentation/git.txt
@@ -43,6 +43,11 @@ unreleased) version of Git, that is available from the 'master'
 branch of the `git.git` repository.
 Documentation for older releases are available here:

+* link:v2.10.0/git.html[documentation for release 2.10]
+
$ 

The diff command itself, if you invoked it with the same file name twice, would show no differences. git presumably creates temporary files corresponding to two different versions of Documentation/git.txt and feeds them to diff -- but the names of those temporary files would not be useful. I think git diff massages the output of diff to make it more meaningful to the reader. (This speculation was not entirely correct. See below.)

Diving into the git source code, diff.c has the string "diff --git" hardwired as a string literal:

strbuf_addf(&header, "%s%sdiff --git %s %s%s\n", line_prefix, meta, a_one, b_two, reset);

And looking into the history of diff.c for the earliest version that contains that string:

$ git log -n 1 b58f23b3
commit b58f23b38a9a9f28d751311353819d3cdf6a86da
Author: Junio C Hamano <[email protected]>
Date:   2005-05-18 09:10:47 -0700

    [PATCH] Fix diff output take #4.

    This implements the output format suggested by Linus in
    <[email protected]>, except the
    imaginary diff option is spelled "diff --git" with double dashes as
    suggested by Matthias Urlichs.

    Signed-off-by: Junio C Hamano <[email protected]>
    Signed-off-by: Linus Torvalds <[email protected]>
$ 

Presumably <Pine.LNX...> is the message-id of some email message in a mailing list somewhere. In any case, this commit message makes it clear that diff --git is an "imaginary diff option".

This email message, cited by nos in a comment, appears to be part of the discussion that led to this.

UPDATE: I speculated above that git diff massages the output of diff, adding this information. I just tried running git diff under strace. It doesn't actually invoke the diff command, or any other command. Rather, all the output is printed by the git process itself, and apparently it computes the differences internally. This behavior might also depend on the version of git (I'm using 2.23.0), the diff command(s) available, and the arguments used.

I'll note that GNU diff has a --label=LABEL option that could be used for this kind of thing:

'-L LABEL'
'--label=LABEL'
     Use LABEL instead of the file name in the context format (*note
     Context Format::) and unified format (*note Unified Format::)
     headers.  *Note RCS::.

but git diff doesn't use it, at least in the one case I tried, and I don't see a reference to it in the git sources.