First let's define what the word Lockset means.
A lockset is the door knob or lever that you turn to open or close a door, it includes all the hardware and the locking latchbolt.
Locksets can also be Deadbolt locks or Deadbolt Locksets.
Grades: Who sets the Grades? The answer: in the Unites States the grading systems for locksets was developed by the Builder's Hardware Manufacturers Association (BHMA) in conjunction with the American National Standards Institute (ANSI).
This is why you will see ANSI/BHMA written when grading, finishes, functions, etc.
are talked about.
So what is Grading? Grading comes in three steps from Grade 1 (the highest) to Grade 3.
With performance doubling as you advance from Grade 3 to Grade 2 and from Grade 2 to Grade 1.
Grade 1: Locksets used in Commercial and Industrial Applications such as schools, offices and shopping center

• Tested to withstand at least 1 million opening and closing cycles
• Latches on locksets extend 3/4″ from the door
• The deadbolt projects at least 1″ from the door
• Can withstand at least 10- 75 ft.
  lbs.
  strikes to the knob or lever

Grade 2: Locksets used for heavy residential and light commercial such as interior office doors, closet doors, etc.

• Tested to withstand 800,000 opening and closing cycle
• Latches on door locks to extend 1/2″ from the door and the deadbolt to extend 5/8″ from the door
• Can withstand at least 5- 75 ft.
  lbs.
  strikes to the knob or lever

Grade 3 Locksets used primarily for residential applications

• Tested to withstand 800,000 opening and closing cycles
• Latches on door locks to extend 1/2″ from the door and the deadbolt to extend 5/8″ from the door
• Can withstand at least 2- 75 ft.
  lbs.
  strikes to the knob or lever

Lockset Functions: What are Lock-Set Functions? This is the ANSI/BHMA standard that defines what the Lockset is used for.
I will explain the most popular.
Entry Lock: Outside knob/lever can be locked by push or turn button inside.
Outside key or push button inside releases the locking mechanism allowing the Entry Lock to open.
Inside push or turn button must be manually operated to unlock outside knob/lever.
Privacy Lock (Bedroom, Bathroom or Office) Latchbolt operated by knob/lever from either side.
Outside knob/lever is locked by push button and unlocked by emergency release outside.
Passage (Closet) Latchbolt operated by knob/lever from either side at all times (non-locking function).
Storeroom: The latch can be opened by using a key from outside or using the knob/lever from the inside.
A key is required to open the lock from the outside.
There are additional functions; however these are the most common.
ANSI/BHMA also provides standards for locks finishes, but that is a subject for another article.