We consider the basic thermodynamics of dense interstellar gas, in the context of collapse and fragmentation, and show that there is a critical entity having mass similar to M. and radius similar to 0.04 pc. On larger length-scales the gas is heated mainly by dissipation of turbulence and/or by cosmic rays, and it cools mainly by emitting molecular line radiation. On smaller length-scales the gas is heated mainly by gravitational compression, and it cools mainly by coupling to the dust. These considerations provide plausible explanations for (i) the scaling laws between clump masses, radii and internal velocity dispersions, R similar to M-1/2 and Delta v similar to M-1/4; (ii) the thermal line-widths seen in the smallest dense cores and the asymmetries seen in those which host YSOs, (iii) the switch at similar to 0.04 PC Which Larson has identified in the clustering properties of young stars - between hierarchical clustering on larger scales, and binary/multiple systems on smaller scales; (iv) the predominance of stars having masses in the range 0.2 to 0.5 M..