Plywood grades are determined by a veneer quality on the face and back of each panel. The first letter designates quality of face veneer (best side), while the second letter denotes the surface quality of the back of the panel. The letter "X" indicates the panel was manufactured with scrap wood as the center plies, not "exterior" as is commonly thought. The A-D rating is only good for construction (softwood) plywood, not for hardwood plywoods such as oak or maple.
"A": Highest grade quality available. Can be defect free or contain small knots, providing they are replaced with wooden plugs (the fillers having a "boat" or an "American football" shape) or repaired with synthetic patch. This grade may contain occasional surface splits that are repaired with synthetic filler. The surface is always sanded and provides for smooth paintable face quality.
"B": Second highest quality veneer grade. Normally a by-product of downgraded "A" quality veneer. Solid surface, but may contain small diameter knots and narrow surface splits. Normally repaired with wooden plugs or synthetic filler. The surface is normally sanded smooth.
"C": Considered to be a lower end face quality, but a reasonable choice for general construction purposes. May contain tight knots up to 1½ inches diameter, some open knot holes, some face splits, and discoloration. Some manufactures may repair the defects with synthetic filler. Panels are typically not sanded.
"D": Considered to be the lowest quality veneer and often used for the back surface for construction grade panels. Allows for several knots, large and small, as well as open knots up to 2½ inches diameter. Open knots, splits, and discoloration are acceptable. "D" grade veneers are neither repaired nor sanded. This grade is not recommended for permanent exposure to weather elements.
Source: Wikipedia