Instructors need to know what students can do before meaningful teaching can happen. Insight into students' pre-existing capacities is necessary to be able to effectively determine the intensity of teaching needed to help students be able to learn what they need to learn to be able to meet the goals of any course. The diagnostic writing exercise is directed to that end, allowing the instructor to get a handle on how the students can perform through offering an in-class writing assignment on a prompt that will be given during class time.
The diagnostic writing exercise is not for a grade in itself, but is instead a tool to drive instruction. It may well be considered as part of student professionalism, so sincere work on it is advised.