This diagram allows Geralt to craft the magical item: Witchers' silver sword. A copy of this diagram can be found in a chest right after Roche's ship makes landfall in Flotsam. Roches ship is not in the main harbour of Flotsam, but a ways along the shoreline past the Nekker cave, which itself is very close to the harbour.
As of the latest version of the Enhanced Edition, this diagram counts as a quest item so Geralt will not be able to sell or store the diagram once the sword has been crafted. Players who have imported a Witcher 1 save game should avoid picking this diagram up since they'll have a better silver sword already.