How can a Switching diode act as a level shifter?
If the TxD output is high the diode is reverse biased, i.e. it blocks. The voltage at RxD is given by the 10k pull-up resistor connected to \$V_{DD}\$ (the lower positive supply voltage).

If TxD output is low the diode is forward biased, i.e. it is conducting and the voltage at RxD is ca. \$0V + V_{forward}\$ (about 0.6V for normal diodes or 0.3V for Schottky diodes).