Diminishing returns are probably best shown off with a couple of examples.
Lets take a splash gun with 100 damage. With no buffs it will deal 100 damage.
If you add 20% gun damage then you’ll be doing
100 x 1.2 = 120
You didn’t have gun damage previously so there was no diminishing returns and so your total damage went up by 20%. If you add 30% gun damage now you’ll be dealing:
100 x (1.2 + 0.3) = 150%
Here because you already had gun damage you suffered diminishing returns and gained only 25% total, even though the boost you added was 30%.
For a general you can find the total increase you get by saying
Total Increase = Total after boost / Total before boost - 1
So in our above example we plug in the gun damage before boost and the one after boost.
Total increase = (1.5 / 1.2) - 1 = 0.25
Which taken as a % is 25% which we saw.
This has the consequence that if you have 100% of a boost then any further boosts of the same type are half as effective. Lets take a Blast Master example. A splash gun with 100 damage and Blast Master does:
100 x 2 = 200
If we add a 40% splash damage boost you get:
100 x 2.4 = 240
Which is a 20% increase to your total damage.
Now onto the question of how much is too much?
Diminishing returns aren’t an issue on their own. 1000 damage in isolation is always better than 999 damage. If boosts of 1 type are the only thing available then get as much of them as you can.
The lesson to diminishing returns is to not over invest. If we think on that Blast Master example, consider that if we took 26% weapon damage roll on a class mod instead of the 40% splash then we get:
100 x 1.26 x 2 = 252
We get better damage from the gun damage in this example because it didn’t suffer diminishing returns. Whereas the 40% splash would have.