What determines which virtual console the graphical interface is run on?

X uses the first free virtual terminal, and the first six are now allocated for gettys by upstart from /etc/init/tty[1-6].conf, and traditionally by init from /etc/inittab.

To choose a specific virtual terminal for X, you pass it the parameter 'vtXX' (see X -help) , where XX is the desired terminal number. There are a bunch of ways to pass parameters to X, but that is stuff for another question. :)

F7 is the default Xserver console. I believe that F8 is only used if there is already an Xserver running on F7, or if F7 is busy.