what is a diffusion boundary
The diffusion boundary is a very thin layer of fluid at the edge of the fluid where diffusion takes place between two systems. It permits diffusion of certain substances but may block diffusion of certain chemicals across it.
It is is just some internal area within a volume of the diffusing material.
With respect to the statement "The squamous epithelium is made of a single thin layer of flattened cells with irregular boundaries. They are found in the walls of blood vessels and air sacs of lungs and are involved in a functions like forming a diffusion boundary."
Diffusion boundary is formed by some internal area in these cells which permits and blocks diffusion of certain substances across it.