Heat is a game mechanic which essentially limits the amount of intensive activities a ship can perform in a given period of time. The amount of heat that a ship currently has is displayed in the Heat Indicator. Each module has a percent of Power usage (can be seen in the Modules subpanel on the right) which indicates relatively how much heat it will generate when it is being utilized. Each activity that is performed (boosting, shooting, etc.) as well as being in certain environments (close proximity to a star) will increase the heat in a ship and once the heat is greater than 150% the ship's hull will begin to take consistent damage.
To cool a ship, the player can equip Heat Sink Launchers, which allow the player to instantly dissipate some of the ship's built-up heat, or by upgrading the ship's Power Plant, which will not overheat as quickly.
A higher amount of heat will also increase the ship's Signature which means that the ship will be more easily detectable by other ships in the area. If a ship has no heat (generally because modules have been turned off or it is in Silent Running mode, trapping all heat inside the ship), then it will be nearly undetectable by other ships unless they are close enough to see the ship visually.
Heat damages modules when the ship's internal temperature exceeds 100%. As long as heat remains above this value, modules may randomly suffer small amounts of damage every few seconds. Should the ship's heat rise above 160%, the ship’s hull will start to lose integrity.
BE AWARE, when your WEP capacitor is low, more heat will bleed out from the weapon’s cooling loop and increase your ship’s temperature.