I am not sure if the term is used in cars and vehicles, but in the mechanics of materials, Mohr's circle is a graphical approach for finding solutions of stresses (or strains) of an element when the coordinate axes are rotated by a certain angle. In other words when you want to find the stresses (or strains) on a plane that is inclined to a certain angle from the plane of known stresses. When the technique is used for stresses, you draw a Mohr's circle of stresses and if it is for strains, you get the Mohr's circle of strains. When you work out the algebraic equations that transform known stresses (or strains) at a point to stresses (or strains) in an inclined plane, they result into an equation of a circle on a coordinate system whose horizontal axis is formed by the normal stress (or strain) and the vertical axis is formed by the shear stress (or strain). It is called the Mohr's circle since the technique was first developed by a German engineer called Otto Mohr.
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You draw a circle around a circle.
Its the distance from the center of the circle to the edge of the circle.
The cord of a circle that contains the center of that circle is a diameter of that circle.
it becomes a circle inside another circle
If you draw a line from the center of a circle to the edge of a circle, you have drawn the radius of the circle. If you draw a line from the edge of a circle through the center of the circle and on to the edge on the opposite side, you have drawn the diameter of a circle. The radius of a circle is one half the diameter of a circle.