Diamonds are graded on their absence of flaws or inclusions.

Flawless diamonds are graded as FL or internally FL, and from there down through the grades of VVS1/VVS2, very, very small inclusions; VS1/VS2, very small inclusions; SI1/SI2/SI3, small inclusions. I1-I3 have eye visible inclusions, and the price is lowered dramatically.