Whenever power is consumed in a device it generates heat. That heat has to get out of the device and that can create problems for small form factor devices or in situations where the device comes into close contact with the body. In order to understand how heat will build up in a device and how it will dissipate into the surroundings, analysis has to be done at the chip, package and board levels and it a function over a large period of time, making simulation difficult and time consuming. New packaging technologies, such as 3D ICs will make analysis worse given that there are now multiple heat sources in close proximity to each other.
Heat can also affect the operation of the device. At the extreme end, it can damage the device. Long before that happens, timing is affected by heat and the performance of analog circuits can be significantly altered. Most SoCs contain several heat sensors on a chip that can signal when temperatures rise beyond certain limits. Then power management techniques can be used to lower the activity and thus, over time, bring the surface temperature back down.
Heat dissipation has been made worse with the introduction of finFETs because heat can accumulate in the fingers.