As for most coins, collectors generally prefer coins in higher grades of preservation.
Although gold sovereigns possess an intrinsic value based on their gold content, their desirability, and therefore their premium value to a collector, will depend also on the condition or grade. The better the grade, the higher will be the value of its premium over its gold content.

Grades
FDC
Normally only applied to proof coins. Literally means "Fleur-de-Coin", absolutely perfect, without any marks, wear or blemishes.

Uncirculated or Unc.
In new condition as issued by the mint, but owing to mass production methods, not necessarily perfect.

EF or Extremely Fine (US = XF)
Showing few signs of having been in circulation, but may exhibit slight surface marks or faint wear on close inspection.

VF or Very Fine
Some wear on the raised surfaces having had only limited circulation, but still very sharp and pleasant.

Fine or F.
Considerable signs of wear on the raised surfaces, or design weak through faulty striking.

Fair
Badly worn, but with the inscriptions and main features of the design still distinguishable, or a piece which is very weakly struck.

Poor
A very worn coin, with some lettering worn away, or parts of the design not visible. Of no value to collectors unless extremely rare.

Almost or About
When combined with one of the above descriptions, means what it says, almost but not quite as good as the grade itself.

Good
When combined with one of the above descriptions, means what it says, better than the grade itself.
When used on its own, an American grading term meaning poor.

Proof or Uncirculated
If you are not sure about the difference between proof and non-proof sovereigns, you may wish to look at our Proof or Uncirculated page.

Differential Grading & Grading Standards
There is an intersting example of overgrading, and different grading standards on our 1821 sovereign page.