Here's a quick overview of grading:

The Ballpark Grade

Precise grading is a fine art, but almost anyone can read the standards and make a fairly accurate ballpark grade.

Mint State (Unc) - Absolutely no trace of wear.

Mint state coins are in the grades MS-60 to MS-70. MS-70 mean perfect. No scratches or blemishes, good sharp strike, impressive color, and a whole lot of incredibly fussy stuff I'm not going to tell you about here. There are no MS-70 coins that are not already slabbed (sealed in numismatic plastic holders). The act of placing it on a table or in you pocket would probably mar any MS-70 enough to disqualify it. The average shiny new coin from a bank would grade MS-63. An exceptionally handsome coin with no marks or scratches would be MS-65. In an average roll of new coins, 2-5 will be MS-60, 5-15 will be MS-61, 25-40 will be MS-63, 5-8 will be MS-64 and 1-2 will be MS-65. You'll get an MS-66 in maybe 10 rolls. You would have to look at 100,000 new coins to find an MS-68.

The real voodoo in coin grading is in assigning uncirculated grades 60-70. Coin dealers with years of experience disagree about these grades. Often depending on whether they are buying or selling. Absolute consistency is impossible even among the professional grading services. As you become more familiar with coin grading you will see that the differences in the top graded coins are highly debatable.

Almost Uncirculated (AU) - Traces of wear only on the highest points

AU coins come in three grades, AU-50, AU-55 and AU-58. Beginners find it difficult to see the differences between the top AU coins and the bottom Uncs. Knowing where the highest points are on various coins is the key. You can practice with new coins. Rub one a few times hard on your mouspad or a table cloth. Look for spots of wear. Hold it sideways and let the light reflect off it at an angle. Worn spots will reflect slightly differently then the unworn areas. If the reflection on the high points is different from the rest of the coin, it's probably not UNC. Often an AU-58 will look better than an UNC MS-60, because the UNC coin may be dirty or tarnished. It is the wear, however, and not always the coin's eye appeal that determines its grade.

Extremely Fine (XF or EF) - Very light wear on only the highest points.

XF coins are graded in two grades, XF-40 and XF-45. The wear on an XF coin is clearly visible, but light, faint, hardly noticeable. On the low points there may still be some of the mint luster. Most of the detail on the coin is still clear. Different coins have different key spots to look at to determine the grade.

Very Fine (VF) - Light to medium wear. All major features are sharp.

VF are in four grades, VF-20, VF-25, VF-30 and sometimes VF-35. Minor features such as hair detail or feathers will be worn. As a general guide, circulating coins with dates from 20 - 30 years ago are good candidates to grade VF. VF coins can be fairly good buys because they still show the major details of the coin at a much lower price. Clad coins don't wear as fast as silver and copper coins do.

Fine (F) - Moderate to heavy wear evenly distributed on the coin. The design remains clear and bold.

Fine is numbered F-12. And average American quarter from the 60's will be in F-12 condition. Most of the details are missing, but the major parts of the design remain.

Very Good (VG-10) - Well worn. A clear design but the coin will be flat and lack detail.

Very Good is VG-8. The whole design will be worn, but a few details are visible. The grade generally requires that the rim be visible all the way around the coin.

Good (G) - Heavy wear.

Design indistinct, details are gone, coin is flattened by wear, rim may be broken in spots. The date and mintmark should still be readable to make this grade.

Almost Good (AG) - Outlined design. Some of the date and legend might be missing.

This is a coin that is about finished as a coin. The date should be readable, but you might have to work at it, sometimes you will only be able to make out the last two digits.

Fair (Fair) - You can identify the type.

This is a coin that is shot. It might be bent. It might have holes in it. You may not be able to read the date. They sometimes refer to coins in this grade as "fillers." You can use them to fill a missing date in an otherwise complete set, but you will replace it with a better one if you can. You might consider a coin in Fair condition in a date that you just can't afford in better grade. Some collectors specialize in this grade in rare dates.

Basal State (Basal)

It is identifiable as a coin, but not much else. They're cheap is about all you can say for them.

Oddities

Poor or weak strike can sometimes look like wear. Lincoln cents from the mid to late 1990s offer a good example of this. Peace Dollars are famous for their weak strike, and early New Orleans mint coins. Well struck specimens command a premium, but wear is still the standard for grading. Some coins are nearly always weakly struck.

As you would expect, even lightly worn coins that have scratches, dark corrosion, pitting, fake color, holes, repairs or other problems will be downgraded considerably.

On occasion coins are graded in between the usual numbers. F-15 or VG-10 for instance.

Some early silver and gold coins have adjustment marks. These do not effect the grade, but can affect the value in a similar fashion.