A diamond's clarity grade is actually a flaw-grade and refers to the tiny imperfections present when the stone was originally formed by nature. If no flaws can be seen under 10X magnification, such as with a diamond loupe, it is considered "flawless".
There are 13 classes of flaws internal (inclusions) and external (blemishes), but the most common are dark spots of foreign material, tiny internal cracks called "feathers", and external nicks or chips.
The diamond clarity grades are as follows:
FL: Flawless. Cannot be seen with a 10X diamond loupe. IF: Internally Flawless. Has tiny nicks or scratches that can be polished out. VVS1, VVS2: Very, Very Slightly Included. Very, very difficult for a qualified observer to see under 10X magnification. VS1, VS2: Very Slightly Included. Very small inclusions, very difficult to see by a qualified observer. SI1, SI2: Slightly Included. Can be seen fairly easily by a qualified observer with a 10X loupe, and in some cases without magnification. I1, I2, I3: Imperfect. Inclusions can be seen with the naked eye, but can be desirable stones at a much lower cost if they are brilliant and lively. Because I3 is the lowest grade used, be on the lookout for industrial grade diamonds not suitable for jewelry that have been classified I3.
FL and IF diamonds are extremely scarce and expensive, so are rarely used in jewelry. VVS stones are rare and priced at a premium, but VS diamonds are more readily available in good color and cut. With SI and I1 stones you find your bargains in good looking diamonds, and I2 should be the bargain hunter's choice for earrings that cannot be viewed up close.
Clarity grades dramatically affect the value of a diamond, but down to I1 have little effect on its beauty.
Clarity enhancement techniques are being used today and should be disclosed by reputable jewelers. The most common are lasering to remove black inclusions, fracture filling to hide cracks and heat or radiation treatment to lighted or change the color.
The final test is whether or not you get a good looking stone at a fair price. We give a money back guarantee with every diamond we sell. (Go next to Diamond Cut)