This is not an explanation, just a suggestion. The diffraction limit is related with the wavelength.The effective wavelength can be defined as the speed devided by frequency. The frequency of a plasmon is the same as that of a free wave but the speed of plasmon can be much lower than c. In fact, the field of slower plasmons is better confined.
Surface plasmons correspond to non-propagating or evanescent electromagnetic waves. Their "penetration depth" therefore decays exponentially with a decay constant near or less 100 nm. Thus, they are confined to an interface from both sides when considering a classical metal-air interface, for example.
Surface plasmons are quanta of charge density oscillations. They are excited on the metal surface when light is shined(incident EM field). There is a resonance phenomena when the oscillating electron interacts with the light which leads to the formation of surface plasmon polaritons. This causes the coupling of light to a small layer on the surface. This leads to a large intensity of Electric field near the surface of the nanostructures.