From TF2 Wiki

Overview

A critical hit or crit is an attack that does extra damage, glows your respective team color, and has distinctive sounds both when fired and when hitting a target. When you hit a player with one, the words "critical hit!!!" appear over the target's head in green letters (see image).

Critical hits deal three times as much damage as a regular hit, and (unlike regular shots) damage does not drop off with distance. [1] Critical hits do only normal damage to buildings.

Some weapons "crit" on a per-shot basis, such as the rocket launcher, revolver, or most melee weapons. Weapons that normally fire quickly with less damage-per-shot will will typically "crit" for several succesive shots in short duration, such as the pistol, minigun, or flamethrower.

Critical hits are awarded based on random chance at the time the shot is fired, starting at 5% for most weapons. Melee weapons generally have a baseline chance of 10%. The amount of damage dealt by a player over the last 20 seconds can increase the crit chance, up to a maximum of 20% [2]. This "super-crit" period can be extended by continued killing. Additional stats on crits have been gathered by testing done by Redcomet and posted on the Steam Users Forums.

Weapon Exceptions

• The spy's butterfly knife does not normally do any critical hits, except in special cases such as humiliation. While a backstab will sometimes have all the appearance and sound of a critical hit, these indicators are just eye-candy, the attack is not a true critical-hit and does much more damage.

• The sniper's headshots are often considered "guaranteed critical hits", but further community testing is needed to clarify the behavior of the sniper rifle. There have been reports of zoomed-in shots to the body of an enemy triggering the "Critical Hit" message. (Note that no other weapon does extra damage when fired at an enemy's head.)

• The Backburner, in addition to normal crit behavior, does critical hit damage when fired into an enemy's back.

• The Axtinguisher will always crit against a burning opponent, and never crit otherwise.

• The K.G.B will have five seconds of guaranteed critical hits after a normal kill that is stackable with more kills by the K.G.B. and will continue for how much time is left if you switch to a different weapon.

Misc

Although "crit" is short for "Critical hit", the term is often used to apply to critical shots or attacks, whether or not those attacks actually hit or damage anything.

During humiliation every shot fired by the winning side is a critical hit, including swipes with the butterfly knife.

Any shots that glow your team's colors and have an electric noise when fired are critical shots. This includes sticky bombs, rockets, grenades, all bullet tracers. Their explosions or impact animations may also appear more forceful and colorful.

All of your shots are critical while ubercharged with the Kritzkrieg. This affects the Blutsauger gun, which normally doesn't crit. The Kritzkrieg doesn't affect sniper body shots or spy knife stabs.