Waste heat is an increase in entropy that doesn't do something that we want it to. It differs from useful energy in that it has effects either irrelevant to or opposed to what we want.

Friction sometimes generates waste heat (as in the case where we want something to move) and sometimes generates useful work (as in the case where we want two things to stop moving relative to each other, and cause them to interact via friction to a common momentum.

The mechanism is electrical forces- given two crystal or ceramic matrices close to each other and moving, electrical forces near the interface cause electrons near the interface to enter different energy levels (heat). The electrons transfer the impulse to other particles in the same ceramic or crystal through other forces, slowing the relative movement of the macro objects.

Asking where gravity gets its power source is like asking where the electron gets its power source. After all, electrons exhibit a force on each of them, and so do baryons.