That’s because diamonds are basically prisms, which capture light and reflect it back and forth, before it leaves the stone. If you had two similar stones and were wondering which of them was the diamond, you could put a tiny light behind each one and see how the light passed through it. If you basically got the beam of light coming out the other side, the stone is not genuine. A diamond refracts the light so many times, that it would only emerge from the other side as a soft glow.
Clarity is considered to be how “clean” the diamond is. Diamonds can have minor inclusions, which are minuscule amounts of gas, liquid, and even minerals, all of which cause an interruption in the flow of light through a stone. Inclusions can be so small, they go unseen by the naked eye. Others may not be visible, especially in small stones, but if they are of the right type, or there are several of them, their presence will disrupt the passage of light to the point where the stone is dull, or looks cloudy.
Some of the finest diamonds in the world have an inclusion of one kind or another, but it does not detract from the overall quality, when considered together with the cut, color and carats.