@quintusvw: I presume you mean the VII chord?
I would recommend thinking about this from a different angle. Rather than ask yourself “How does the VIIdim chord fit in with the other chords of the key”, get to know the diminished chord type in its own right (for example with chord type ear training) and how it can complement melodies, and think of the VII being a diminished chord just as a byproduct of how the major scale is constructed.
It’s a bit like the various types of seventh chord which come out of the major scale. If you approach it expecting them all to have a clear useful purpose when composing in that key, you might get frustrated. Often the times when these chord types are used turn out to be as a “borrowed” chord in another key, or as an alteration of a simpler chord from the key.
So instead of playing a VIIdim chord and expecting it to sound as natural as the I, IV and V, I’d recommend playing around with throwing the VII note (ti) in to your melodies and chords, and see how it can introduce that “diminished feel”.