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it helps to transfer the heat from the core to the atmosphere, and prevents a potential meltdown of the core. have you ever noticed that a hot cpu, clogged heatsink, and/or a non functioning fan has decreased performance, but a working setup has great performance?
Most enthusiast groups perfer to have liquid cooling as they yeild the greatest cooling performance, or they perfer to have some top-notch heatsinks like the tuniq tower, or the ninja. Personally I perfer the ninja, as my core idles at 20C, and loads at 32C.
Thermal transfer compounds also assist in the thermal transfer of heat from the core to the heatsink / block. The most common of these are Arctic silver and what this does is fill in the little pits that are on the bottom of the cooling device and fill in the little pits on the top of the core. It may not seem like there are any, but on a micro level, there are, just imagine trying to tranfer heat from one object to another, and there are a bunch of open areas where there is no contact at all, just a little space of air, and air acts as an insulator.