The diencephalon is the smallest but important region of the brain located in the center. It relays sensory information between parts of the nervous system and helps interpret signals more accurately. It consists of four sections - the hypothalamus regulates hormones and homeostasis, the epithalamus contains the pineal gland and assists with smell and sleep, the subthalamus connects to motor functions, and the thalamus transmits all sensory information except smell and regulates circadian rhythms. The pituitary gland's posterior portion is also part of the diencephalon.