Heat treating begins the first time you heat the bar up to start forging. If you get it too hot, you can cause some damage through grain growth and decarburization. Grain growth is easily fixed, through thermal cycling. Decarburization (decarb for short) is when you burn carbon out of the steel. This is not fixable, and you have to leave extra material on to account for this.
After forging, I thermal cycle the steel at least 3 times, straightening the blade between each cycle. Thermal cycling is when you heat the blade up past nonmagnetic, then let it air cool till it regains its magnetism. How long you have to wait for this to happen is different for every steel. For simple steels like 1080, it can be less than a minute. For steels like O1 or L6, it could be more than 10 minutes! I use a lower temperature each cycle. This refines and homogenizes the grain, and helps relieve stresses in the steel.
Next I normalize at least once, depending on the steel type. The main difference between normalizing and thermal cycling is that with normalizing the piece is cooled all the way to ambient temperature. This also refines the grain and relieves stresses caused by the forging process.
After normalizing, the next step is annealing. Annealing makes the steel softer and easier to grind and drill, and also relieves stress. There are different types of annealing, the one I use is called sphereoidal anneal. Sphereoidizing is when the steel is heated to a point below the critical temp, held for a while, and allowed to cool slowly. This results in structure that is easier to grind and machine than what you would get from a lamellar anneal, which is pearlite. Pearlite is formed when the steel is heated above the critical and allowed to cool slowly.
Next step is grinding, which I'll describe elsewhere.
After grinding, the next thing is hardening. This is the most critical step in the whole process. This is what makes or breaks the knife. To harden steel, it's heated to a point called the austenitizing temp, held for an appropriate amount of time (called the "soak") and then quenched in the correct medium. When steel is austenitized, the carbon (and other alloys) are dissolved into the iron matrix. However, austenite is not a stable structure. Quenching converts the unstable austenite into something called martensite. Martensite is not very stable either, until it's tempered. In fact some steels will crack into a bunch of pieces without even getting touched.
After hardening, the knife must be tempered. Tempering is when the steel is heated in an oven to a much lower temperature than when itís hardened. Tempering does several things. It relieves stress. It makes the steel less brittle. The tempering will also cause some of the extra carbon to precipitate out in the form of very fine carbides.
Before tempering, if itís a partial tang knife, I use the torch to soften the area where the pin that holds the handle on will go, so it will drill easily. This area is about 45 RC after this step.
After tempering two or three times, then itís time to re-grind, then finish.