While I know what it means, providing definitions is not my strong point, but here goes: Diegetic means within the fictional world.
The term comes mainly from film criticism, and an obvious example is music in Star Wars. The music in the Cantina is diegetic, because there's a band playing it in the background, and the characters would be able to hear it. The music playing during the dogfighting sequences is non-diegetic, as the characters wouldn't be able to hear it, and it's put there solely for the viewer.
I guess the soundtrack to Elite will also be non-diegetic, though Grand Theft Auto used diegetic music, as it was played through the radio.
In terms of the menu interfaces, in MMORPGs, the 'Chat' window is non-diegetic, as is all the info like character health. What Frontier are doing is putting all of that info within the game-world. The 'Chat' window is something that your avatar would be able to see. We know from the DDA that the galaxy map will be a diegetic hologram, and I suspect that Frontier will make the trading screen diegetic too.