If the majority of potassium in the body is in red blood cells and very little in serum why is serum potassium level used to diagnose hypokalemia?

It's what matters. The serum potassium is in equilibrium with the tissue concentrations, which must be maintained within a very narrow range for the heat to be able to maintain its beat. Your question is a good one and reflects a common misunderstanding. It's not the total body potassium that matters, just the amount that's actually affecting the electrical system outside the heart & brain cells.
Becuase it can . Be measured quickly, safely, and with good accuracy. Not such a method to determine intracellular electrolyte levels.
Potassium. Electrolytes are in balance between intra and extracellular spaces. If the serum potassium is low, then even though intracellular potassium is higher, the total body potassium is down. When serum potassium is too high or too low, serious systemic problems result.