Increasing evidence shows that the percentage of the air made up of oxygen is a major determinant of animal size.
High oxygen environments produce giant animals from bird sized dragonflies to fifteeen foot high rhinos. Low oxygen environments produce runts. And, high oxygen levels are also crucial for warm blooded animals that require about three times more oxygen to maintain their metabolisms than reptiles, for example. High oxygen levels also allow life to thrive at higher elevations, while low oxygen levels are associated with extinctions and with the concentration of life in low lying areas. At its low point in geologic time, oxygen concentrations in the air at sea level were comparable to what they are now at the top of a fourteener.
One of the facinating aspects of this hypothesis, is that it is quite easy to test rigorously in laboratory environments. If you want to see how big insects or crocodiles get in a high or low oxygen environment, all you have to do is create an air tight habitat and see what happens in a few generations. Shifts in oxygen concentrations that took tens of millions of years to take place historically, can be reproduced relatively inexpensively in minutes. The tests so far, show that the hypothesis works. One key limiting factor in larger animals is the ability to get oxygen everywhere in the body that needs to carry on the animals metabolism. Getting blood (in vetrabrates) or simply pure diffusing oxygen (in insects) to the right place fast enough to maintain the chemical reactions of life gets harder and harder as animals get bigger and bigger. As with armies, the survivial of large animals is largely a matter of logistics and supply lines. The more concentrated oxygen is in the air, the easier it is to get it to where it needs to go.
There are two interesting applications of this knowledge.
First, oxygen concentrations should be a key parameter of any world contemplated in a science fiction context. An intensely oxygen rich environment might be perfect for huge fire breathing dragons. An oxygen poor environment (or oxygen poor micro-environments, like underground cave systems) might foster smaller creatures. And, in an oxygen poor environment, there might be more isolated ecosystems, because even fairly low mountains might be impassible due to the impossibility of breathing at those altitudes.
Second, in controlled environments, for example, space stations or space ships or undersea habitations, one might deliberately choose to have an environment with an oxygen concentration other than the Earth sea level norm. Maybe you'd want it low, to force people to build strong lungs that would make them competitive in sea level oxygen events (just as marathoners sometimes train in the mountains). Maybe you'd want it high -- something that appears to be good for neonatal health and can help people heal wounds, among other things. Similarly, could something as simple as an oxygen bar actually have positive health effects? We already have large populations of older people, especially in high elevation areas like Denver, who rely on extra oxygen to survive. Why shouldn't it benefit healthy people too?
I just think it's cool. Giant insects and monsterous animals have their own appeal.