Surface deformation associated with continental earthquake ruptures includes localized deformation on the faults, as well as deformation in the surrounding medium though distributed and/or diffuse processes. However, the connection of the diffuse part of the surface deformation to the overall rupture process, as well as its underlying physical mechanisms are not yet well understood. Computing high-resolution optical image correlations for the 2021/05/21 Mw7.4 Maduo, Tibet, rupture, we highlight a correlation between the presence of faults and fractures at the surface, and variations in the across-fault displacement gradient, fault zone width, and amplitude of surface displacement. We show that surface slip along primary faults is systematically associated with gradients greater than 1%, and is dominant in regions of greater coseismic surface displacement. Conversely, the diffuse deformation is associated with gradients ≤0.3%, and is dominant in regions of lesser surface displacement. The distributed deformation then occurs for intermediate gradients of 0.3-1%, and at the transition between the localized and diffuse deformation regions. Such patterns of deformation are also described in laboratory experiments of rock deformation, themself supported by field observations. Comparing these experiments to our observations, we demonstrate that the diffuse deformation along the 2021 Maduo rupture corresponds to kilometer-wide plastic yielding of the bulk medium occurring in regions where surface rupture is generally missing. Along the 2021 Maduo rupture, diffuse deformation occurs primarily in the epicentral region, where the dynamic stresses associated with the nascent pulse-like rupture could not overcome the shallow fault zone frictional strength.