well, lemme try to explain it, ill start with tidal evolution,
Take the Earth and Moon for example,
the Moon is pulling on the earth, causing the core at the center of the Earth to bulge into a egg shape. As the Earth rotates, the bulge rotates away from the Moon, and pulls the Moon forward just a tiny bit more, causing it to go a tiny bit faster, so it kind of slowly spirals outward, and this also slows down Earth's rotation, eventually the moon will get far enough that it orbits in the same amount of time it takes Earth to rotate, and it will stop moving outwards. However its likely the sun will have gone red giant and gone out by then, so we probably wouldn't live to see it.
The game doesn't calculate all this though, it just see's if the moon's time to make one full orbit is longer/shorter then the time it takes the moon's parent to make one full rotation, and makes it slowly spiral inwards/outwards,
but since it takes a very long time to see the effects of this, its easiest to see it when you place a moon in a large orbit around a planet and turn the timestep up to a very high amount.
Now, with tidal heating, you have a moon in a slightly oval orbit of a gas giant, this moon orbits very close to the gas giant, which causes the moons equator to be pulled out, like taking two giant hands and squeezing the moon at the north and south poles, as it gets closer to the gas giant at the lowest part of its orbit, the pull is at its most, causing the equator to be pulled out more, then as it goes around to the highest point of its orbit the pull lessens, allowing the moon to return to a more spherical shape, and it goes back and forth between this, as it goes around its orbit, the friction from all this causes it to warm up, not a lot, but some.
the game just sees how close the moon is to its parent, and adds heat depending on how close it is, but i think this part of the game may be bugged, since sometimes it causes moons to become so hot they turn into blue balls of plasma.
I'm not a developer so don't quote me on how the game works, i'm just going on what iv'e seen by playing the game, so i may be wrong on how the game does this, one of the developers would have to explain how it does it.