Millions of years ago when the diamonds you buy today crystallized into formation, traces of minerals, gasses and other elements were often entrapped inside them.
These tiny traces, called "inclusions," can appear like clouds or feathers under examination. They function almost as birthmarks, making each diamond unique. Many are not visible to the naked eye.
The clarity grade of a diamond is determined by using two instruments; 10 power magnification (preferably a microscope) and the human eye. What you are looking for are not only inclusions (inside the diamond), but blemishes as well (on the surface).
The number, size and visibility of a diamond's inclusions contribute to its grade on the clarity scale shown below. Not surprisingly, the fewer and smaller the inclusions, the more rare and valuable the diamond. Conversely, the larger, more visible, and more frequently occurring the inclusions, the lower the grade and the less rare the diamond.
Diamonds with inclusions visible to the naked eye are given grades in the lower clarity range (I-1 to I-3) - those with fewer and smaller inclusions have grades going up the scale to Flawless (FL) or Internally Flawless (IF).
Only the rarest of diamonds achieve the highest quality of clarity and have no inclusions at all. In fact, fewer than one percent of all diamonds ever found have been free of inclusions.
Remember that almost every diamond has inclusions and just because a diamond has an inclusion does not mean it is not a quality stone. Very subtle differences in the appearance of the diamond under a microscope can have a big effect on value. One clarity grade can make a 10 - 15% difference in value.