Clarity refers to how free a diamond is from nature's "birthmarks," or tiny, generally microscopic imperfections that make each diamond unique.
Diamonds are assigned clarity grades based on what can be detected with ten-power magnification. Most internal features (inclusions) and external features (blemishes) in the diamond have little or no effect on brilliance and fire.
So if small clarity characteristics don't affect a diamond's beauty, why are diamonds with higher clarity grade so expensive? It's simply because diamonds with relatively few clarity characteristics are very rare. Fortunately, diamonds of all clarity grades and prices, including those with eye-visible inclusions, can look beautiful depending on how well they're cut and other factors. The best advice is to look at several diamonds of different clarity grades and let your eye be the guide!
These charts below will provide the definition of clarity grades and give you some idea of how clarity grades compare to one another. Remember, trained professionals perform clarity grading under ten-power binocular magnification and the average person would have a harder time locating clarity characteristics.

Internally Flawless IF
Free from internal blemishes visible under 10x magnification (small external details tolerated).

Very very Slightly included VVS
Inclusions and/or external blemishes very difficult to locate under 10x magnification.

Very Slightly included VS
Inclusions and external blemishes difficult to locate under 10x magnification.

Slightly included SI
Inclusions and external blemishes easy to locate under 10x magnification.

Included I
Medium or large inclusions or external blemishes which are usually obvious to the naked eye under favorable lighting conditions.