Thermal grease
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Thermal grease (also called "Thermal compound" or "Thermal paste") is a substance used to help the conduction of heat between two (usually metal) surfaces. It is often used to aid the thermal dissipation of central processing units via a heatsink.
Today, thermal grease is produced by many companies. There are basically two types of thermal grease these days.
1) Silicone-based white thermal grease with mediocre thermal conductivity. Often shipped with coolers.
2) Silver thermal-grease. This type contains silver particles and other "special" ingredients. Silver thermal grease does often have a better thermal conductivity (and is of course more expensive) which is useful for enthusiasts or overclockers.
Essentially, thermal grease's primary purpose in computing is to substitute for the constructional imperfections of a heatsink's surface. When applied in appropriate quantities, it sits in the tiny pits and grooves thereby increasing the amount of surface-to-surface contact with the CPU die.