In Diablo III, difficulty is handled in sequential fashion:
And so on. Does Diablo II work the same way?
If so, how is the Lord of Destruction expansion pack handled? Is Normal Act V intended to be as hard as Nightmare Act I, or was Nightmare re-tuned such that Act I Nightmare is harder than Act V Normal?
Being a fairly avid D2 player, I can tell you that it works in roughly the same way. Just like in D3, as you go up in difficulties, creatures become much stronger. In D2, many of them gain immunity to specific elements, and the likelihood that you would encounter a unique (yellow/gold monsters) or pack of champions (blue monsters) is increased. Additionally, uniques and champions have more modifiers when you encounter them (similar to in D3).
In much the same way, the Acts also scale in difficulty. In fact, Blizzard did a very good job of making Act 5 harder than Act 4 of the same difficulty, but not so much that it was much harder than Act 1 of the next. A lot of this comes from the fact that as you increase in difficulty levels, a lot of your stats are reduced. For example, in Nightmare, all players suffer a -50% reduction to all resistances. Additionally, life steal effects are cut to a quarter. When you go to Hell, the player starts with -100% resistance (yes, it was completely possible to have all negative resistances, which would, as you'd expect, amplify damage taken from that source), and life steal effects were cut to 1/8.
Another big spike in the difficulty was also mentioned above: the more common appearance of uniques and champions. In Normal, it is unlikely that you will find more than 1 or 2 packs of uniques or champions in any given area (for example, the stony field), excluding super uniques which always appear in the area (like Rakinishu, Blood Raven, Bishibosh, etc). However, in Nightmare, it is not unlikely that you will simply encounter 2 packs of uniques/champions at once. Then you might have to deal with something like "Cold enchanted, extra fast" at the same time as dealing with "Lightning enchanted, multiple shot". That, along with natural monster immunities (for example, the entire Fallen tribe becomes completely immune to fire damage in Hell mode) makes Hell mode much more challenging than even Act 5 of Nightmare.
This is an expansion of AndyPerfect's answer.
I've exported monster level (mlvl) data from patch 1.13 (but the latest patch, 1.14, brings no changes to monster data, so this answer is still valid).
It seems that progress is almost nearly linear:
Normal Nightmare Hell
Act 1 - mean 7 39 75
Act 2 - mean 15 46 79
Act 3 - mean 23 52 82
Act 4 - mean 27 57 84
Act 5 - mean* 33 63 83
*including Cow Level, as player has to kill Baal to enter it
What is worth noting, Act V Hell has average monster level lower than Act IV. Act IV has only 5 areas and average mlvl has been increased by River of Flame and CS. Act V has 28 areas (including Ubers and Cow Level, which is after Act V progress-wise), so there's no such bias.
As a picture is worth thousand words, I've prepared charts with monster level per area: per difficulty level and summarising one. Areas have been arranged by in-game progress (i.e. in order in which player can visit them).
As you can see, progress is almost linear. However, there are some discontinuities:
If anyone need data from this post for further theorycrafting, it's available here.
It's not fair to say that Act I Nightmare is inherently harder than Act V or Act IV Normal. In many ways, Act I nightmare was substantially easier and simpler than Act V Normal. This is because the monsters are generally simpler. What matters is monster level. Monsters steadily scale as you progress throughout the game. When the Act V expansion was released, the game Act V settled neatly in between IV and I with respect to monster levels.
So, to answer your question, Diablo II does indeed work in relatively the same way in that monster levels slowly increase from act to act, whether this means that any given act is easier than the previous (especially when comparing Act I of a harder difficulty to Act V of an easier difficulty) depends entirely on the character's build.
