When wood is graded, the main goal is to classify a floor into a category that gives a customer a reasonable expectation of how much grain variation and how many imperfections are present in a given product. Depending on what effect you're after, a rustic barn-wood kitchen or an elegant library, the grade will help you achieve the desired look.
A high grade floor will have less naturally occurring imperfections such as mineral streaks and knots. It will also have less color or grain variation plank to plank.
-Because the of how the lumber industry affected grades that are available today, allow me this tangent and give you a little background on how harvesting lumber has changed over the years:
50 years ago tree cutting was more or less a free for all. There was little regulation about where and what could be harvested for lumber. With lumber designated for flooring, this allowed for a more selective process when choosing what to box and sell to homeowners. Planks were much longer than they are today and also much clearer (less knots etc.). Without going into detail about sawing techniques used to maximize the beauty of woodgrain (you might've heard of quarter-sawn hardwood) , let's just say there is a noticeable difference in the look of a floor that is 50 years old or more. Floors like this can still be had albeit at a high price tag.
More and more land was federally protected and the industry had to change how it operated. Modern forestry became sustainable and renewable. Old growth was now illegal to harvest.
In an effort to maximize the board-feet a tree yields for lumber, they became less selective about what imperfections made it into a batch to be boxed. Also, the planks became shorter and more varied in length. These are the same hardwood floors you see today.
Therefore "Clear" grade long-plank is a very expensive option and only available unfinished in most cases - if you can find it.
At the end of the day, most of what you'll see on display is what is called "Select and Better" grade. It's a mix of clear and character planks. If you're going for a medium to dark color, the grade won't really matter since the stain will hide most of the grain.
In Part 3. I will explain engineered wood vs solid.