Clarity is one of the most important characteristics of a diamond.  It is the quality of diamonds relating to the existence and visual appearance of internal characteristics of a diamond called inclusions, and surface defects called blemishes. 

Basically there are two types of flaws: inclusions and blemishes. Inclusions refer to internal flaws and blemishes refer to surface flaws.  Inclusions include flaws such as air bubbles, cracks, and non-diamond minerals found in the diamond. Blemishes include scratches, pits, and chips.  Diamonds with no or few inclusions and blemishes are more valuable than those with less clarity.

A clarity grade is assigned based on the overall appearance of the stone under ten times magnification.

The GIA grading system:

F -
 Flawless: No internal or external flaws. Extremely rare.

IF -
 Internally Flawless: no internal flaws, but some surface flaws. Very rare.

 Very Very Slightly Included (two grades): Minute inclusions very difficult to detect under 10x magnification by a trained gemologist.

VS1-VS2 -
 Very Slightly Included (two grades): Minute inclusions seen only with difficulty under 10x magnification.

SI1-SI2 -
 Slightly Included (two grades): Minute inclusions more easily detected under 10x magnification.  

NOTE: For grades F/IF through SI, a diamond's clarity grade has an impact on the diamond's value, not on the unmagnified diamond's appearance.

I1-I2-I3 - 
Included (three grades): Inclusions visible under 10x magnification AS WELL AS to the human eye.