What happens to the kinetic energy of a dropped ball when it comes to rest on the ground? If we want to drop a ball from a height, we calculated that potential energy at bottom is zero and we say it is converted into kinetic energy. At that movement, if it is a kind of sand, we find it will be at rest. So, what happened to its mechanical energy over there?
 A: The energy gets converted into the form of heat and sound. In this way the energy is conserved.
A: Just before the ball reaches the ground, all of its molecules are coming down with almost an equal speed that is the speed of the ball.(Although, due to the non-zero temperature of the ball, the molecules are also vibrating about their mean position wrt COM frame of the ball).And thus the ball possesses a systematic macroscopic kinetic energy.  
Now when the ball hits the sand, due to the collisions between the particles of sand and that of the ball, most of the kinetic energy of the ball is transferred to the particles of the sand.
During this process, the air molecules also get some little push/pull and some of the kinetic energy is transferred to the air molecules which appears as sound. 
The kinetic energy with the sand particles is distributed among another sand particles in successive collisions and finally the kinetic energy is distributed among a large number of particles and the amplitude of their motion become so tiny that it takes the form of vibrational motion of the molecules of sand and we call it the internal energy or in rough terms - 'heat'.
A very nice video on the concerned topic by Feynman. https://www.youtube.com/watch?v=v3pYRn5j7oI&list=PL04B3F5636096478C&index=1
A: Heat and sound, which then also is converted into heat. The total energy of the system is thus conserved.
A: If you're dropping a projectile into sand, the potential energy that you began with ends up being converted into kinetic energy (from the sand thrown out from the collision), sound energy, and thermal energy. Ultimately, the thermal energy is the only surviving energy after any appreciable time though.
A: A better question in this case is to ask if we drop a feather from a height, we see that the feather settles on the ground quietly. I you can under this which is a lot easier to explain and much mor intuitive. 
So as any object falls in a fluid (in this case air) it firstly accelerates and finally reaches constant velocity termed as terminal velocity, at this time the gravitational force equals the viscous force (applied by air). For feather the terminal velocity is very less and all the way down the potential energy is dissipated as heat and sound. 
PS: You should read about terminal velocity and the variable it depends on in much more detail to have a more clear understanding.    
