2 Made last paragraph more definitive.

The dual Coxeter number comes up naturally as a normalization factor for invariant bilinear forms on the Lie algebra: according to Kac's book which you quote, $2h^{\vee}$ is the ratio between the Killing form and the "minimal" bilnear form (the trace form for $sl_n$), which has the property that the square of the length of the maximal root is 2.

This minimal form corresponds to the minimal affine Kac-Moody group corresponding to the Lie algebra, or equivalently to the minimal line bundle on the affine Grassmannian or the moduli spaces of G-bundles on curves (the generator of the Picard group). As a result, the $-2h^\vee$-th power of the basic ample line bundle on the Grassmannian or moduli space of bundles (which is associated to the level given by the Killing form) ends up being identified with the canonical line bundle, and in particular the $h^\vee$th power is a square-root of the canonical bundle, or spin structure. (This is analogous to the role of $\rho$ for the finite flag variety.) Thus the critical level arises naturally geometrically -- it corresponds to half-forms on the Grassmannian/moduli spaces. The basic yoga of quantization (or of unitary/normalized induction of representations) tells us that classical symmetries are "shifted" by half-forms - cf $\rho$-shifts in representation theory. Likewise the critical shift for affine algebras.. for example the Feigin-Frenkel theorem is the analogue of the Harish-Chandra isomorphism: the center of the enveloping algebra at critical level (rather than level 0 as one might naively guess, ignoring half-form twists) is isomorphic to the algebra of invariant polynomials on the (dual of the) Lie algebra. (This can be said more canonically keeping track of symmetries of change of variable, magic word being "opers", but let's ignore that).

Probably one

One can say all this very naturally algebraically (without resorting to geometry) -- $\rho$ can be described as the square root of the modular character of the Borel subalgebra (up to sign or somethinglike that, not being very careful here), so I would guess the . The critical level has a similar description in terms of the positive half (Taylor series part) of the Kac-Moody algebra..? algebra - if you try to define the modular character of this half you are quickly led to semiinfinite determinants etc, ie to the previous geometric story, and so one can assert that the critical level "is" half the modular character of the positive loop subalgebra.

1

The dual Coxeter number comes up naturally as a normalization factor for invariant bilinear forms on the Lie algebra: according to Kac's book which you quote, $2h^{\vee}$ is the ratio between the Killing form and the "minimal" bilnear form (the trace form for $sl_n$), which has the property that the square of the length of the maximal root is 2.

This minimal form corresponds to the minimal affine Kac-Moody group corresponding to the Lie algebra, or equivalently to the minimal line bundle on the affine Grassmannian or the moduli spaces of G-bundles on curves (the generator of the Picard group). As a result, the $-2h^\vee$-th power of the basic ample line bundle on the Grassmannian or moduli space of bundles (which is associated to the level given by the Killing form) ends up being identified with the canonical line bundle, and in particular the $h^\vee$th power is a square-root of the canonical bundle, or spin structure. (This is analogous to the role of $\rho$ for the finite flag variety.) Thus the critical level arises naturally geometrically -- it corresponds to half-forms on the Grassmannian/moduli spaces. The basic yoga of quantization tells us that classical symmetries are "shifted" by half-forms - cf $\rho$-shifts in representation theory. Likewise the critical shift for affine algebras.. for example the Feigin-Frenkel theorem is the analogue of the Harish-Chandra isomorphism: the center of the enveloping algebra at critical level (rather than level 0 as one might naively guess, ignoring half-form twists) is isomorphic to the algebra of invariant polynomials on the (dual of the) Lie algebra. (This can be said more canonically keeping track of symmetries of change of variable, but let's ignore that).

Probably one can say all this very naturally algebraically (without resorting to geometry) -- $\rho$ can be described as the square root of the modular character of the Borel subalgebra (or something like that, not being very careful here), so I would guess the critical level has a similar description in terms of the positive half (Taylor series part) of the Kac-Moody algebra..?