The speaker is talking about a girl named Chelsea, who laughs off the compliment when she's told she's beautiful. She lists what she sees as flaws: a cracked front tooth, bitten-down nails, eyebrows that go wavy when she laughs, a "slightly potatoish" nose. The poem shifts between "you" and "I," so it feels like both a general observation and a personal confession from someone who cares about her.
What the speaker feels most is sadness. They are puzzled and hurt that Chelsea has learned to judge herself by her skin and appearance, and that she lets her mirror and society decide her worth. The line "which breaks my heart" says it plainly.
The ending turns warm and tender. Chelsea doesn't realize how many lives she has improved just by smiling and existing. The mood is gentle and aching, a kind of loving frustration. The speaker sees someone valuable, while she sees only a list of faults.