I'm Charles Beaudet, a second-generation jeweler. As I grew up, my father taught me diamond grading. I learned that that before the 1920's diamonds were relatively scarce, and there was no standardized grading system. Grading was limited mostly to clarity issues. If a stone was obviously tinted, it was also graded lower.
Once the supply was guaranteed, the rarity of a diamond was mainly determined by its purity of color. The finest stones were saved for viewing on a clear day from a northern facing window. Blue and yellow magically cancel each other out in the crystal. Because diamonds are mostly tinted by nitrogen and hydrogen, which adds yellow, the blue from the sky on a clear day was used to grade their color. When the blue from the sky dominated, stones were called Blue White. The stones where the blue was canceled out were called White. Yellow dominated stones were given names of diamond mines, such as Cape.
By the 1940's, the flaws in this system were obvious. The Gemological Institute of America (GIA) was being formed as a training school for gemologists and jewelers. It developed grading tools and devised a standard system for the grading of diamond color by using artificial daylight without the ultraviolet to avoid florescence and a yardstick technique of master stones. Today, this is the recognized standard throughout the world.
Now, color and clarity are graded using standards under strict lighting, magnification and measurement. Both GIA and the American Gem Society (AGS) have concluded 10-year studies on diamond proportion, symmetry, polish and light handling, which in aggregate we call cut.
More information on my blog http://topcut.wordpress.com