How Much Heat Is Created
LEDs are not 100% efficient. Much of the power running through an LED is output as heat and needs to be dissipated. Good high power LED's, such as some Cree XLamp LEDs are over 40 or 50% efficient – that is, under normal operating conditions, approximately 50% to 60% of the input power is output as heat, while the rest of the input power is converted to light. However this is by no means the case for all LED's. To be safe where you don't have accurate data for a LED you should assume that 100% of the input power needs to be dissipated as heat. Even for the Cree XLamp LEDs mentioned above they recommend that to be conservative you should assume the LEDs convert 25% of the input power to light and output 75% of the input power as heat. This estimate varies depending on current density, brightness and component, but is a good estimate for thermal design.
How to calculate the thermal power
Pt = Therm x Vf x If
Therm = Your thermal disipation factor, so 1 for 100%, 0.75 for 75%, etc
Pt is the thermal power (W) the heat sink must dissipate
Vf is the forward voltage of the LED (V)
If is the source current to the LED (A)