It refers to the presence of internal features such as breaks or foreign bodies, called inclusions, within a diamond, and to external imperfections such as scratches (called blemishes).  Both blemishes and especially inclusions lower the clarity grade (and hence the value) of a diamond, but in most cases they have very little effect on a stone’s beauty or durability.

Under the GIA Clarity Grading System, there are 11 grades in total from Flawless (FL) to Imperfect 3 (I3).  SI3 grade is only available at EGL. 

	FL - Flawless Flawless diamonds show no inclusions or blemishes of any sort when examined by a skilled grader under 10X magnification. 1.57ct - 10X magnification A perfect diamond. No internal or external imperfections.
	IF - Internally Flawless IF diamonds show no inclusions and only insignificant blemishes when examined by a skilled grader under 10X magnification. 1.06ct - 45X magnification Seen here in the upper girdle facets slight graining is allowed in an Internally Flawless (and Flawless) diamond.
	VVS1 - Very Very Slightly Included 1 VVS diamonds contain minute inclusions that are difficult for even a skilled grader to see under 10X magnification. In VVS1 they are extremely difficult to see, visible only from pavilion, or small and shallow enough to be removed by minor re-polishing. 3.26ct - 63X magnification Just inside the table (just right of centre) is a +10X pinpoint, visible only at higher magnification.  +10X pinpoints may be found in any diamond, including those graded Flawless and Internally Flawless.
	VVS2 - Very Very Slightly Included 2 VVS diamonds contain minute inclusions that are difficult for even a skilled grader to see under 10X magnification.  In VVS2 they are very difficult to see. 2.86ct - 63X magnification This VVS2 size pinpoint at 63X has the look of a small crystal.  To call the final grade, the pinpoint must be viewed with a 10X loupe.
	VS1 - Very Slightly Included 1 VS1 diamonds contain minor inclusions that is difficult for a trained grader to see under 10X magnification.  Typical inclusions are distinct clouds and groups of pinpoints.  They do not affect the stone's beauty. 1.08ct - 10X magnification The small feather in the table seen just below and left of the culet has been graded VS1.
	VS2 - Very Slightly Included 2 VS2 diamonds contain minor inclusions that is somewhat easy for a trained grader to see under 10X magnification.  Typical inclusions are small included crystals and feathers.  They do not affect the stone's beauty.  2.00ct - 10X magnification The white feather located at 1:00 in the star facet is VS size.  To determine the depth of the feather, a look through the pavilion is necessary before setting the final grade.
	SI1 - Slightly Included 1 SI1 diamonds contain noticeable inclusions which are easy for a trained grader to see under 10X.  Typical inclusions are included crystals, clouds, feathers, normally centrally located and noticed immediately.  1.51ct - 10X magnification This interesting crisscross of two feathers is somewhat small compared to the size of the table, yet white and very easy to see at 10X.  The unusual look may make it hard to identify the inclusion, so higher magnification is desired to call the final grade.
	SI2 - Slightly Included 2 SI2 diamonds contain noticeable inclusions which are very easy for a trained grader to see under 10X.  Typical inclusions are included crystals, clouds, feathers, normally centrally located and noticed immediately. 1.26ct - 20X magnification Intergrowth / twinning wisps establish the grade for this diamond.  The more white opaque inclusions at 10:00 in the star facet lowers what could have been an SI1 clarity.
	SI3 - Very Slightly Included 3 SI3 diamonds contain obvious inclusions which are prominent for a trained grader under 10X.  Typical inclusions are included crystals, clouds, feathers, normally centrally located or numerous.  This grade is to fill the gap between SI2 and I1, GIA does not offer this grade. 2.01ct - 25X magnification There are 6 crystals located high up within the table.  For some graders, SI2 may seem too lenient for such an obvious group of crystals.  For others, I1 might seem too hard, as the crystals do not pose any threat to the stone's integrity, nor do they appear overly large with respect to the size of the stone.
	I1 - Imperfect 1 I-grade diamonds contain inclusions that are obvious to a trained grader under 10X magnification.  I1 inclusions are usually quite visible to the unaided eye. 2.03ct - 10X magnification Numerous SI1 inclusions throughout the diamond, reflecting and refracting, along with three dense clouds at 1:00, 5:00 and 9:00, establishes the high I1 grade.
	I2 - Imperfect 2 I2 are easily visible.  I3 are extremely easy to see and may affect the stone’s potential durability. 0.76ct - 10X magnification A very large white feather reflecting to the other side gives this diamond an obvious Imperfect grade.