How do diffusion models work, and what do the VAE and U-Net do in latent diffusion (Stable Diffusion)?

Forward noising is fixed, reverse denoising is learned, and the training loss is a plain noise-prediction regression. The signal is why that beats a GAN's minimax and what the VAE and U-Net each do in latent space. Here is the answer.

Updated Aug 2026 · Grounded in real Applied AI Engineer interview loops and written to a senior-engineer editorial bar.