No, you don't have to dilute it. Just drop in a few drops to start.
Try it on a paper towel first. In between colors, clean out your airbrush gun by using a glass of very hot water, just press the trigger with it in the water and it will clear it out, then spray onto a paper towel to remove the excess.
You can practice on a coloring book page if you are using a stencil for your picture. If you just want to free hand colors onto the cake, just practice on a paper towel till you get the hang of it. It's not very hard at all.
First outline holding it close to the picture, then fill it in. Be careful not to use too much pressure when outlining.
You should be able to google "airbrushing a cake" and find a tutorial or go to youtube and look for one.
I hope this helps, I'm not very good at explaining things. Good Luck.