Connect to a database, then click the "Diagram" toolbar option at the top of the Toad window, also available under Tools | Database Diagram. This opens the diagram feature in Toad.
Here is a video of how to use the Toad "ER Diagrammer" (menu list on the left).
Drag tables from object palette into the diagram viewing area (blank area that opens in the window). The Diagrammer will also pull in dependent tables based off of defined relationships to that one or many tables that have been specifically added to the diagram viewing area. Keep in mind this is based off of relationships between objects created/defined by scripts. If a parent child relationship is not defined, Toad will not know and will not be able to display it. If there are relationships that are not specifically defined in the script, they can be create manually for diagram purposes in the ER Diagram tool.