Carat is commonly misconceived as the size of a diamond, but it is actually a unit of weight. 1.0 carats measures 0.2 grams.  

Large diamonds occur less frequently in nature, making them rare and valuable.  So as carat weight increases, so do the size and value of a diamond.

For the average person to detect a noticeable size difference between two diamond, the rule of thumb is for one  diamond to weigh 20% more than the other. For example, when looking at a 1 carat diamond you will need to compare it with a 1.2 carat stone to notice a significant difference in size. Use the following chart as a guide to visualize the correlation between carat weight and diamond size (the chart is not to scale and should only be used as a reference).

CAUTION: One pitfall to be cautious of when buying a diamond is diamond depth.  If a diamond is too deep, the weight is concentrated at the bottom reducing the surface area at the top and making the diamond appear small and narrow.  So two diamonds of equal weight but varying depths will measure different widths, which is why a deep 2 carat diamond can actually look like a 1.75 carat diamond.