Understanding Clarity
Another vital diamond grading characteristic is their clarity. This refers to the number, position and size of the inclusions that occur naturally inside diamonds. The fewer and less obvious the inclusions, the more valuable the diamond. Here is an illustration that shows the clarity grading scale that has been established by the world’s foremost authority on diamonds, the Gemological Institute of America (GIA). Note: Diamonds are shown under 10X magnification):

F Flawless. The diamond shows no inclusions or blemishes of any sort under 10X magnification when observed by an experienced grader. Note: Truly flawless or internally flawless (F or IF on the GIA’s grading scale) diamonds are extremely rare.
IF Internally Flawless. The diamond has no inclusions when examined by an experienced grader using 10X magnification, but will have some minor blemishes.
VVS1, VVS2 Very, Very slightly included.The diamond contains minute inclusions that are difficult even for experienced graders to see under 10X magnification.
VS1, VS2 Very slightly included. The diamond contains minute inclusions such as small crystals, clouds or feathers when observed with effort under 10X magnification.
SI1, SI2 Slightly included.The diamond contains inclusions (clouds, included crystals, knots, cavities, and feathers) that are noticeable to an experienced grader under 10X magnification.
I1, I2, I3 Included. The diamond contains inclusions (possibly large feathers or large included crystals) that are obvious under 10X magnification and may affect transparency and brilliance.

It is these inclusions or blemishes that give each diamond its own unique fingerprint, making your particular diamond truly yours. In fact, the independent grading report that comes with every diamond we sell will show a diagram indicting any characteristic your diamond, indicating any blemishes your diamond may have, as well as their location. Click here to see what a grading report looks like. The most important thing to remember when it comes to clarity is that a diamond’s inclusions should not be noticeable to the naked eye, nor should they be so excessive that they affect the diamond’s durability.

A diamond's ability to refract and reflect light is what makes it so brilliant and so valuable. The way it does this is by allowing light to enter the top of the stone, reflect off the facets that have been cut by a diamond craftsman, and reflect out the top of the stone to your eye. So, the fewer obstacles to this pathway there are, the greater the diamond's clarity will be, which increases the diamond's value (all other characteristics being equal).

Most diamonds contain some blemishes (crystals, clouds, or feathers), which can be found inside the stone (called inclusions). Surface blemishes are not considered a major concern, since they can often be polished away. Crystals are mineral deposits trapped inside the diamond; clouds are small specks or hazy areas that give a milky appearance; and feathers are small cracks that are shaped like a bird's feather.

Naturally, inclusions that don't impede the light's passage through the diamond or visibly decrease its beauty will not have a substantial effect on its value. It is more important that any blemishes do not affect the stone's attractiveness or durability, than that the diamond be 'perfect'.

A diamond's clarity is measured using a jeweler's loupe (a small magnifying glass used to view gemstones) under 10-power magnification. The FTC requires all diamond grading be done under 10-power magnification; any inclusions not detected under this magnification are considered to be non-existent.

The bottom line
Since clarity is so critical, it will of course result in differences in value. If a diamond of a particular cut, color and carat weight is moved to the next clarity grade, it's possible to see a significant increase or decrease in the per-carat price - all other factors being equal. The object is to choose a stone with the greatest clarity grade your budget will allow, taking into consideration the other of the 4Cs as well