Most Diamonds have flaws of some sort. These flaws are known generally as "inclusions" or imperfections. Inclusions can be either on the exterior or interior of the diamond. Additionally, inclusions are classified according to when they formed either “syngenetic” (during the diamond’s creation or “epigenetic” (after a diamond’s creation).
To determine if a diamond has any flaws or inclusions, it should be examined with a lens (Jeweler's Loupe) that magnifies at a power of 10x. This is the standard magnification used in the industry.
Any flaws which are visible with the naked eye would cause the price of the diamond to be reduced.
Having said that, one must understand that not all diamond flaws (just like diamonds) are created equal. Some diamond flaws provide a diamond a unique splendor that makes it look exceptional.