The key difference between the "Degraded" status and the "Critical" status is:

With degraded, only one alarm has been triggered, whereas with critical, two or more alarms were triggered

With degraded, the Steelhead appliance is still optimizing traffic, whereas with critical the Steelhead may or may not be optimizing

With degraded, there is no optimization due to a software problem, whereas with critical there is no optimization due to a hardware problem

With both degraded and critical, optimization functions as normal however administrator attention is required