The mechanisms and effects of spectral diffusion for optical transitions of paramagnetic ions have been explored using the inhomogeneously broadened 1536 nm $^{4}\mathrm{I}_{15∕2}\ensuremath{\rightarrow}^{4}\mathrm{I}_{13∕2}$ transition in ${\mathrm{Er}}^{3+}:{\mathrm{Y}}_{2}{\mathrm{SiO}}_{5}$. Using photon echo spectroscopy, spectral diffusion was measured by observing the evolution of the effective coherence lifetimes over time scales from $1\phantom{\rule{0.3em}{0ex}}\ensuremath{\mu}\mathrm{s}$ to 20 ms for magnetic-field strengths from 0.3 to 6.0 T, temperatures from 1.6 to 6.5 K, and nominal ${\mathrm{Er}}^{3+}$ concentrations of 0.0015%, 0.005%, and 0.02%. To understand the effect of spectral diffusion on material decoherence for different environmental conditions and material compositions, data and models were compared to identify spectral diffusion mechanisms and microscopic spin dynamics. Observations were successfully modeled by ${\mathrm{Er}}^{3+}\ensuremath{-}{\mathrm{Er}}^{3+}$ magnetic dipole interactions and ${\mathrm{Er}}^{3+}$ electron spin flips driven by the one-phonon direct process. At temperatures of 4.2 K and higher, spectral diffusion due to $^{89}\mathrm{Y}$ nuclear spin flips was also observed. The success in describing our extensive experimental results using simple models provides an important capability for exploring larger parameter spaces, accelerating the design and optimization of materials for spatial-spectral holography, and spectral hole-burning devices. The broad insight into spectral diffusion mechanisms and dynamics is applicable to other paramagnetic materials, such as those containing ${\mathrm{Yb}}^{3+}$ or ${\mathrm{Nd}}^{3+}$.