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I trying to build permissioned network with Substrate. I don't understand diagram following. Let help me explain it. Thanks. enter image description here

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A permissioned network is one where only authorized nodes are allowed to perform specific network activities.

The diagram shows you a network with 4 nodes: Alice and Bob are the nodes predefined in the genesis specification for genesis state which basically means the 2 nodes that will start the network.

In a permissionless blockchain anyone can join the network by running the node software, but in the case you want to build you have to add a new node as a well-known node. In the diagram Charlie and Dave has been added lately into the network.

To add these nodes in Substrate is recommended to use the node-authorization pallet.

The node-authorization pallet is a prebuilt FRAME pallet that enables you to manage a configurable set of nodes for a network.

For more practical knowledge I suggest you to go and build that network following these tutorials: Add trusted nodes and Authorize specific nodes. After this you will understand better the diagram, how to run a network and how to use the node-authorization pallet to add nodes into your network.

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