This reaction is a Wolff-Kishner reduction [Organic Chemistry Portal, Wikipedia] which accomplishes the exhaustive reduction from a ketone to an alkyl group. Usually Wolff-Kishner requires forcing conditions, but I think this substrate could react under more mild conditions. The mechanism explains why.
The mechanism begins with the condensation of hydrazine onto a ketone (details not shown) to give a hydrazone. Under basic conditions, this hydrazone is deprotonated at nitrogen to give an anionic intermediate. In this case, the negative charge can be delocalized onto oxygen, resulting in an enolate structure. Typically, the negative charge is only shared between a nitrogen and carbon, so this substrate gives a particularly stable intermediate. Protonation of the enolate at carbon gives the first C-H bond necessary to form the product. A second deprotonation at nitrogen gives a similar flow of electrons to form another enolate structure, this time with cleavage of the C-N bond and release of nitrogen gas. Another C-protonation gives the lactam precursor to diclofenac. Cleavage of the amide with hydroxide (details not shown) gives the target.