Thanks to eddypeck.
The heater matrix is a small 'radiator' inside the car. It's located inside the heater box behind the dash.
Hot water is fed through the matrix from the engines main cooling system. A fan pushes air through the radiator, which warms the air. The combination of flaps direct the warm air around the car; either to the windscreen, the footwell area or direct into the cabin.
The original design of the heater matrix had a flaw and they were prone to explode, showing the feet and angles of the occupants with pressurised, boiling water and steam.
VW did a recall and fitted a shield, as well as a bypass valve (https://www.vwgolfmk2.co.uk/clubforum/index.php?topic=20.0).