You can try Archive of Our Own (AO3). It has a large collection of fanfics from various fandoms, including ones about Oscar Diaz. Just search for his name in the search bar, and you'll likely find a bunch of relevant fanfics.
Well, there are various 'Oscar Diaz fanfic' out there. Some focus on his relationships within the show's universe, like his friendships or family ties. For example, 'Oscar and His Crew' which details his interactions with the gang members. These fanfics can be a great way to explore the character further and see different interpretations of him.
Partially. The show takes some elements from real life and blends them with fictional storylines to create a unique narrative. So, it's not a direct account of a specific true story but has real-life influences.
First, you should really know the character well. Watch the show that marco diaz is from multiple times to pick up on his mannerisms, his speech patterns, and his general personality traits. Then, think of an interesting concept. It could be something as simple as 'what if marco had a different pet?' or something more complex like 'what if marco was the only one who could stop an impending doom in a parallel universe?'