Clarity refers to the purity of the gemstone and is determined by the transparency of the stone and the existence of inclusions (any material trapped inside another mineral as it forms, such as crystals, liquid, or gas bubbles). In lamens terms, it means how clean and clear the stone is. The higher the clarity, the more valuable the stone.
Sometimes inclusions are a good thing. In emeralds, inclusions give proof that the stone is genuine. And in star sapphire or rubies, it's the 'silk inclusions' that give the asterism star effect.
To read more about inclusions in Diamonds, click HERE.