This question has been asked several times: what is the best tool for design? And I think that it is actually a combination of all, and they have their own specialized use.
I am talking for almost any kind of design that make use of shapes and lines, regardless of the architecture, platform or computer language. The audience could be yourself, peers, boss, customers, and any other individual which may interact, or not, with the design.
And there's also diagramming tools for the iPad. Two I've come across are Adobe Ideas (free) and OmniGraffle ($50-ish).
-Krip
On my experience board + photo camera is the best. Everyone can participate and get the "real feel" of the design process. Pen+paper is bad, since you can't easily erase part of the drawing. Online tools are only good for distributed team. They are always restricted by some application rules when you can draw any metaphor on the board (add devil horns to manager actor? easily!).
You've got to take a picture of what you've got though to use later.
It's really a balancing act. The factors you need to weight depend on the project.
Less formal designs are faster but suffer from scope creep. This typically results in more maintenance.
More formal designs force the customer to think more intelligently about what they want. Scope creep is less of a problem, but these projects take longer and sometimes the customer will find another solution before development/design is complete.
Pencil and paper is great to start by yourself. You can draw and write and multiple pages, and try multiple ideas. It's easy to go back to previous pages. It is also great for mind-mapping, so you don't have to worry about the little nuisances of diagramming software (e.g., typing, grabbing the mouse, etc.). When done, you then might take it to the following step: whiteboard.
Whiteboards: The bigger, the better. Great to discuss and brain-storm ideas with colleagues. Erasing allows for easy experimentation, and colors can be used at will, in contrast with pencil (I don't like erasable color pens or pencils for paper). Capture with a cell phone or camera, and share with your colleagues. This is crucial to avoid the fear of experimenting and erasing. (TIP: Be sure that your photo is readable on a screen or printer before erasing!)
Software: Later on, you may discover that your design needs inserting a box, which means moving around multiple blocks, or creating an incomprehensible mess of connections. Copy your design from paper or whiteboard to a drawing software, and use the fantastic tools that any software provides: copying, moving, adding, erasing.