The short answer is "don't use it." With about 1 million other words in the English language, this is one that can be forgotten about.

It's not a word. It exists only in the expression "Hot diggity dog!" That's an out-of-date expression. Nobody says it any more. Even back when it was used, it was sort of a silly expression, the kind of substitute expression someone might say instead of using bad language. It's an intensification of "Hot dog!" which is another out-of-date expression. Both are general expressions of enthusiasm. You might use the word if you are fond of popular U.S. music of the 1950s and are singing the song that was a hit for Perry Como: "Ooooooohhhhhhhh... Hot diggity dog ziggity, BOOM! What you do to me, It's so new to me, what you do to me, Hot diggity, dog ziggity, boom! what you do to me When you're holding me tight!"

As the other two said, you should use it if you become a cartoon character in the 1950s or if you become a rapper in the 1990s. It is very unlikely that you will belong to either of those two groups - so you will never, ever, ever need to use the word "diggity." Never. "Hot Diggity Dog" is an exclamation. Depending on the situation, it was used to show excitement or disappointment - in cartoons and comic strips.

This phrase is not something anyone really says.... only Mickey Mouse :)