Thermal compound (sometimes known as thermal interface material, or TIM) is the stuff used to fill in the microscopic gaps between the processor and the mechanical heat sink in computers and other electronic devices. It is designed to maximize the contact surface area and remove air gaps, which are bad for heat transfer and can lead to overheating and failure of the device.
There are different types of thermal paste, which differ in their material composition and performance characteristics. Generally, good thermal compounds provide low bond line and eliminate air, which is a poor conductor, from the interface between two surfaces. They also ensure low thermal resistance and high heat transfer. Some of the more advanced ones, such as carbon-based diamond thermal paste, are five times more effective than silver in transferring heat and are electrically insulating.
Consumer-level thermal compound based on silica and silicon usually has good performance and is adequate for most desktop PCs, but it may not be enough for overclocked machines. Some enthusiasts go to great lengths to improve the quality of their thermal compound, experimenting with silver, exotic oxides and other additives. Some of them even use liquid metal thermal compounds, which have very high conductivity but are not cheap and require careful handling.
It is important to use only a small amount of thermal compound when applying it, which means putting less than a pea or BB size dot of it on the center of the CPU top. Using too much will create an air gap, while using too little will not be very effective. It is also a good idea to look for a thermal compound that does not dry out or lose its pliable properties with time, as ordinary cheap white grease can do.