Waste heat is that thermal energy that is unusable or that which is rejected from an engine to the cold sink or environment.
In the simplest terms it is the heat which you can make use of (easily).
For more see wikipedia article. http://en.wikipedia.org/wiki/Waste_heat
The smoke you see rising out of your neighbors chimney.....that smoke is being carried upwards by heat from the fireplace. In this example the waste heat is the heat generated by the fire that does not help heat the house. It just goes up the chimney with the smoke and floats away. If we could put a Stirling engine in the chimney, we "MIGHT" be able to recover some of that energy and turn it into electricity. How much electricity "and how much the engine would cost" would be the factors that determine if the project was worth attempting.
I know from experience that people in the UK have water pipes in their fire places so that when they have a fire going "which is most of the time", water gets heated by the fire and is carried along to their hot water radiators in other rooms and to their hot water heater. This system is very simple and greatly extends the range and efficiency of their fireplace.
Rebember, the only dumb question is the one you don't ask.