This filter is found in Filters->Render->Patterns->Diffraction Patterns.

This filter lets you make diffraction or wave interference textures. You can change the Frequency, Contours and Sharp Edges for each of the RGB channels. You can also set Brightness, Scattering and Polarization of the texture. There is no automatic preview, so you must press the preview button to update. On a slow system, this may take a bit of time.

This is a very useful filter if you want to create intricate patterns. It's perfect for making psychedelic, batik-like textures, or for imitating patterns in stained glass (as in a church window).

It seems clear that the plugin works by simulating the physics of light striking a grating. Unfortunately, the original authors never got around to writing down the theory behind it, or explaining what the parameters mean. The best approach, then, is just to twiddle things and see what happens. Fortunately, almost anything you do seems to produce interesting results.