OK, so for now let's just figure 2- 50 gallon tanks of water one on either side of a compressor sitting between them. One is a water cooled condenser coil and the other is basically a chiller barrel. Just looking at the heating side, Figure that the water temp of both tanks start out at 50°F.
We start the compressor the refrigerant goes into the tank that is the water cooled condenser. Then into a metering device near the other drum acting as a chiller, where the refrigerant will boil off absorbing heat in the process and lowering the temperature of the water in the chiller tank. Then the superheated gas goes back to the compressor where it is compressed and send to the barrel with the condenser in it. Here the gas will give up it's heat into the cooler water causing the refrigerant to condense back into a liquid where the process will continue again and again. In addition to condensing the refrigerant into a liquid, the water in the "condenser barrel" will raise in temperature. Which can then be used to heat the structure.
As this cycle continues the water in the "chiller tank" will get colder & colder and the water in the "condenser tank" will get hotter and hotter until some sort of set point is made.
This is the way I figure it would work. I am sure there are a few other things going on. Seems like it would be a pretty efficient system. Anyway that is the physics that would take place as I see it. If I missed something let me know. I may be looking at the thing completely wrong.