It doesn't necessarily refer to literal weight loss, but rather to the need for simplification, streamlining, or cutting back.
Here are some examples:
* "The company's marketing strategy needs to go on a diet." This means the strategy is too complicated, has too many elements, or is too expensive and needs to be simplified.
* "My to-do list needs to go on a diet." This means the list is too long and overwhelming, and some tasks need to be removed or postponed.
* "The novel needs to go on a diet." This means the novel is too long or has too much unnecessary detail and needs to be edited down.
In general, the idiom implies that something is too large, unwieldy, or excessive and needs to be made smaller or more manageable.