Step 2: Types of diode clipping
The clipping effect works in both directions relative to ground--so a circuit that clips both the positive and negative signal peaks is two diodes connected in opposing directions. The diodes can be chosen to pass as much of the signal as necessary. More clipping equals more distortion.
The first illustration shows:
1) An unclipped signal
2) Asymmetrical clipping, one side of the signal (not limited to a single diode.)
3) Symmetrical clipping, where both the + and - signal is clipped equally.
4) Asymmetrical clipping, both sides.
Variation #4, asymmetrical clipping, offers the most natural and "tube-like" sound. Plus, it's the most flexible--any number of diodes in series can be used to shape the effect.
Picture #2 shows just a few variations of asymmetrical clipping. Notice that LEDs are used as diodes in examples B and C! LEDs have a much higher forward voltage than typical diodes, so the clipping can be softer and more subtle.