I am not a physicist so bear with me. I'm trying to understand the mechanism through which energy is dissipated in a fluid or solid. Often the explanation is that it happens due to viscosity or friction and that velocity dependent forces have to be added that reduce the total energy. However at molecular and thermodynamic level energy should be conserved. I need to understand better the nature of the dissipated heat and where it goes.
This question How is viscosity described on the molecular level? gave me some good insights but I'm still puzzled by a few things. Let's take a scenario of molecules interacting via Lennard-Jones potentials and let them fall under gravity (or even in zero g). In the real world this bunch of particles will always reach equilibrium, i.e. zero velocity and kinetic energy relative to its inertial frame. Highly viscous materials will just do it quicker. As far as I understand this is because energy gets transformed to heat, although by energy we mean here actually "useful" energy which I'm not sure what it means.
My question is: what happens to the energy of the flow in a viscous fluid (at molecular level)? Does it get transformed to increased temperature, increased entropy, kinetic energy of hidden degrees of freedom, stored potential energy, heat dissipation into the environment or something else?