You've already seen a diminished 7th chord be used as a viio7 chord in the harmonic minor scale.  But it also has its uses outside the diatonic "rulebook."

Remember that a diminished seventh chord is a diminished triad with a diminished seventh interval.

Now take a look at these chords: 

You'll notice two things:

1. All four chords have the same notes.
2. Each root of each chord is within the Bo7 chord.

You can see that a diminished 7th chord can have four possible roots while remaining the same chord.  This makes the the chord's relationship with other chords more complex.  There are two main functions of the diminished chord.

Substitution For Dominant Seventh Chord

* It is important to note that diminished 7th chords are name based on what note is in the bass, nothing else.

You can also use this for secondary dominants.  Try using this chord progression and see what I mean.

Cmaj7 - C#o7 (A7) - Dm7 - D#o7 (B7) - Emi7

Passing Chord

A passing chord is a nondiatonic chord that connects two diatonic chords.  Somewhat like a passing note.  Let's look at the same progression with one change.

Cmaj7 - C#o7 (A7), Dm7, D#o7 - C/E

The C#o7 still acts like a dominant substitution, but the D#o7 can no longer do the same.  C/E leading tone is B, which is not in D#o7, therefore it can not act like a dominant substitution.  Therefore it is a passing chord.

Remember the following:

1. If any of the four notes of a diminished seventh chord is the leading tone of the next chord, it is a viio chord, or dominant substitute.
2. If none of the notes of a diminished seventh chord are the leading tone of the next chord, it is a passing chord.