Just like a coal, oil or nuclear power plant the Microchp gives off heat as it generates electricity. Instead of releasing that extra heat out into the atmosphere and rivers, like a traditional power plant, it captures the heat and uses it to heat the house. Why didn't some one think of this before?
Here are some links:
http://en.wikipedia.org/wiki/MicroCHP
http://www.climate-energy.com/micro-chp.asp
http://www.csmonitor.com/2006