Clarity grading is determined by a lack of inclusions and blemishes, or cloudiness inside a diamond.
The GIA Diamond Clarity Scale has 6 categories, some of which are divided, for a total of 11 specific grades (These explanations below are straight from the GIA, which is the global standard for diamond grading).
No inclusions and no blemishes visible under 10x magnification
No inclusions visible under 10x magnification
Inclusions so slight they are difficult for a skilled grader to see under 10x magnification
Inclusions are observed with effort under 10x magnification, but can be characterized as minor
Inclusions are noticeable under 10x magnification
Inclusions are obvious under 10x magnification which may affect transparency and brilliance
Diamonds that have too many inclusions might affect the durability of the diamond.