I think this is one of those meaning of life questions like "What causes gravity?" and "Why is the Earth flat?" We can do all sorts of math to keep track of the thermal energy dissipated by kinetic friction, but exactly why it happens is perhaps best answered by "it just does." I guess a good visualization is that of a flat object sliding across a gooey surface where it sticks momentarily, slowing it down. Once it breaks free of the goo, the goo molecules that were stretched away by the sliding object are free to vibrate and in doing so heve thermal energy (in the form of vibrational kinetic energy).