Heatsink, usually has fins and a fan for cooling and it is there to help dissipate heat from what ever it is attached too. Your CPU has one as does your GPU.
Thermal paste or Thermal Interface Material "TIM" is a compound that is used to help transfer the heat from the CPU or GPU or what ever you are trying to cool to the heatsink.
It's like a sticky grease made of various compounds. It's there to help conduct heat away from the part you are trying to cool.
Sometimes this TIM isn't there in the proper amounts to transfer heat properly. Sometimes it helps to remove the old TIM and reapply some new TIM. Other times it doesn't help at all. You would need to take apart your GPU to do that.
Often times just adding case fans will help with a problem like yours. My GPU used to overheat during certain parts of Crysis with the multi player battle map until I added a few more 120mm fans to my case along with a controller so I can turn them up or down. I thought a few 120'smm and a couple of 90mm fan's would be enough also...I was incorrect about that...live and learn.
I now have 9 case fans which is what it takes to keep a single GTX280 cool during intense gaming in the summer time when it gets very hot in this room...80-90F.
There are also programs for ATI cards that allow you to turn up the GPU fan manually which can also help with cooling.