That's exactly it. This implies some very cool things:The Dominant 7th chord of the note you flatted by a semitone!
1.) The note you are flatting is the b9 of the chord whose root is one note down. No matter what note you are flatting, so you can really look at any given diminished chord as three 7-9 chords. For instance an Ab dim would be a G7-9, but it would also be Bb7-9, Db7-9 or E7-9. Of course, its the same thing every three frets up! Now you have inversions (??) out the wazoo.
2.) Keeping that in mind, notice that a diminished seventh chord, is the 7th degree of the harmonic minor scale. So, for instance in a basic progression like this: |Cmaj7 | C#dim | Dm7 | G7 | , you can play a D har. min. scale over that C#dim. This becomes immediately apparent if you see the C#dim chord as an A7-9.
3.) BUT...isn't a C#dim 3 other 7-9 chords? Yeah man, they are, and what this implies is that you can play ALL 4 harmonic minor scales over that C#dim, and it will sound cool!!! Basically moving the scale patterns up in minor thirds, just like the diminished scale itself is all you have to do, so that C#dim chord will breed: D har. min. F har. min. Ab har. min, and Bhar. min. Now THAT'S cool.
4.) This is all diatonic, but not really diatonic, if you know what I mean. That C#dim is supposed to substitute for an A7b9 about 99% of the time, and this would be the sound you would want to go for. Still, nobody is going to shoot you if you play the other scales.