What is meant by the phrase-diamond of the first water?

Answer 1

"Water" refers to the translucency of a gem-thus, a diamond of the first water is the finest quality.

Answer 2

A diamond of the first water, that is, of the first excellence refers to the limpidity and luster of a precious stone, especially a diamond that is perfectly pure and transparent.

The degree of brilliance in a diamond is called its 'water'. Clear white diamonds are called diamonds of the first water.

In language, it is used as a metaphor for excellence, especially in Victorian England. A perfect debutante would be called "a diamond of the first water."