Originally Posted by: equatorYou keep the E and G notes as a contour while leading the C note to D chromatically (C-C#-D)
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Great explanation. BTW - The "proper" theory term is that E & G are common tones in C major and C# dim.
[QUOTE=equator]That is a good example of voice leading.

It is EXACTLY that!!! Great point.

Also, as Jolly very insightfully pointed out the, vii dim chord and the V chord are the most powerful chords in voice leading - and thus for use in changing chords and keys. They are BOTH dominant function chords - chords that happen right before a return to a tonic or "one chord" (I).

Finally, I want to point out that something else a little bit more subtle, kind of "behind the scenes" thing going on. Notice that the C# dim chord also shares 3 notes with A7 - the V dominant of D minor (or major)!

C# dim - C# - E - G
A7 - A - C# - E - G

In fact if you continue on with the diminished series and make the C# a full dim chord - C# - E - G - B flat you get what jazz guys call a A7 flat 9.

It does sound "gospelly", and very classical or baroque. But that is all in how you use it.