Difficulty does not effect experience gained directly, but there are additional monsters in various places. Primarily the difficulty level effects how many hit points/mana everyone has, and your chance to hit / be hit. On hardcore, each character has a 30% chance of getting an extra skill point when leveling up (9% chance both will). It does not effect the story or quests, and I don't think it effects the quality or amount of loot dropped (aside for the extra opponents).