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The quote refers to the level of everyday attractiveness (not just physical, but also in character and personality) that Cassio possesses.
This line is often cited to show Iago's insecurity although its precise meaning is just as often debated. It shows that even Iago understands the depth of the contrast between them: Cassio is attractive and Iago is not. The line suggests that Cassio does not have to work at appearing beautiful to others, for Cassio's is a "daily beauty"--that is something quotidian, something that happens every day of his life, without effort. In contrast, Iago has to artfully develop his attractiveness to others, convincing each person that he is on his side. He knows that people like him because of what he pretends to be, and he also knows that he is not actually what he pretends he is. Unlike Cassio, who just is who he is,Iago's attractive appearance takes careful planning and artifice; it is not natural.
The "daily beauty" in one's life could also refer to character. The very qualities that make Iago think Cassio unfit for promotion are the same qualities that seem to make Cassio better than Iago. Iago is a fighter, a master of manipulation (low arts); in contrast, Cassio is a scholar (of sorts); he is educated (Iago calls him a mathematician) and he is adept at courtesy (high arts). Character is something one has, rather than what one wears or puts on for special occasions. Cassio's character is naturally more beautiful than Iago's heavily made-up appearance of character.
Finally, this quote tells us what Iago thinks of himself. Iago seems to think that he is not "ugly" on his own, but that it is in juxtaposition with Cassio that he appears so. So revealing: Iago feels he is ugly in comparison to Cassio and he is. But would he not be just as ugly without Cassio to act as a foil?
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