This chapter reveals Kṛṣṇa as the cause of all causes. He is even the cause of the Mahā-Viṣṇu, and from Him the material universes emanate. Kṛṣṇa is not an incarnation; He is the source of all incarnations. That has been completely explained in the last chapter.
Now, as far as Arjuna is concerned, he says that his illusion is over. This means that Arjuna no longer thinks of Kṛṣṇa as a mere human being, as a friend of his, but as the source of everything. Arjuna is very enlightened and is glad that he has a great friend like Kṛṣṇa, but now he is thinking that although he may accept Kṛṣṇa as the source of everything, others may not. So in order to establish Kṛṣṇa's divinity for all, he is requesting Kṛṣṇa in this chapter to show His universal form. Actually when one sees the universal form of Kṛṣṇa one becomes frightened, like Arjuna, but Kṛṣṇa is so kind that after showing it He converts Himself again into His original form. Arjuna agrees to what Kṛṣṇa says several times. Kṛṣṇa is speaking to him just for his benefit, and Arjuna acknowledges that all this is happening to him by Kṛṣṇa's grace. He is now convinced that Kṛṣṇa is the cause of all causes and is present in everyone's heart as the Supersoul.