What happens to an acrylic latex paint if it is diluted with water? In what way would this lessen the durability of the dry paint film?

When water is added to paint, the solid content of the system is diluted. As a result, the diluted paint will not form as thick a dry film as the paint manufacturer intended. Since film thickness is important to durability, these paints will perform poorer than expected. Hiding can suffer, too.