As far as I understand, it's actually used to indicate a hiatus instead of a diphtong. E.g. naïvety is meant to indicate that aï are part of different syllables

As far as I understand, it's actually used to indicate a hiatus instead of a diphtong. E.g. naïvety is meant to indicate that aï are part of different syllables and shouldn't be pronounced in the same syllable, just like the oö in coördinate.