Short answers, pulled from the story.
Cotton diplomacy was the Confederate strategy of implementing a cotton trade embargo against Britain and Europe to coerce those nations into supporting the Confederate war effort. The Confederacy believed that European dependence on Southern cotton for textile manufacturing would force Britain and France to recognize the Confederacy and help break the Union naval blockade.
Cotton diplomacy failed because Britain and France chose to maintain neutrality rather than risk confrontation with the Union. Britain worried about its Canadian provinces and its dependence on American wheat and corn imports. European nations also found alternative cotton sources in Egypt and the East Indies beginning in 1862.
By the late 1850s, Southern cotton accounted for 77 percent of the 800 million pounds of cotton consumed in Britain. In 1860, Britain held 366,329 bales of American cotton in reserve, out of 584,280 bales held across all of Europe.
Confederate cotton exports to Europe fell from 3.8 million bales in 1860 to virtually nothing in 1862. The Union naval blockade ordered by President Abraham Lincoln on the 16th of April, 1861, played a major role in that collapse alongside the Confederacy's own voluntary embargo.
Britain and continental Europe began importing cotton from Egypt and from the East Indies in 1862. East Indian cotton consumption rose from 742,390 bales to 1,034,865 bales between 1861 and 1862, and by 1865 East Indian cotton consumption had increased by another 400,000 bales.
In 1858, Senator James Hammond of South Carolina declared that without cotton, "old England would topple headlong and carry the whole civilized world with her," and that "no power on earth dares to make war upon it. Cotton is king." This statement captured the Confederate belief that cotton dependency gave the South irreplaceable geopolitical leverage.