Rain works by issueing a HALT operation during idle CPU times. This is done in most REAL operating systems at the kernel level. Win95/98/ME will sit in an idle loop executing instructions when it could easily just issue a HALT.
The HALT operation reduces current consumption by the CPU and thus heat.
I think there are some other power saving things that can be done with the CPU (to cool it), and Rain might do them as well, but honestly I haven't read that much about rain.
Rain has no concept of how hot the CPU is, it doesn't change what is going on due to CPU temperature. All it does is try to reduce wasted CPU operations.