Ahh, Fluid Dynamics, what a wonderful subject.
Lets State what we do know:
1. We do know that Auto trannies do multiply torque on some level.
2. We also do agree with the statement that energy is neither created or destroyed, only that energy is always converted into another form (heat, light, motion, etc).
What everyone has said is basically correct- Yes, there is some loss, but not all of the energy is lost through heat.
From Lake Superior Converters;
The ability of the torque converter to multiply torque can be understood by applying "Newton's Law of Physics" - for every action, there is an equal and opposite reaction. In the converter, the impeller, the turbine, and the reactor (stator) are points of action and reaction with respect to fluid flow. During the period of torque multiplication, the reaction of the stationary reactor (stator) blades to the fluid is the same direction as the impeller rotation. In accordance with "Newton's Law", the reactor (stator) torque (A) plus the impeller torque (B) equals the turbine torque (C).
A fluid coupling cannot increase torque because there are only two points of action and reaction - the impeller and the turbine - which results only in an equal and opposite reaction. Introduction of the third action (stator) multiplies the reactive force.
(with some plagerism)
The curved turbine blades absorb energy from the fluid until the force of the fluid is great enough to overcome the turbine's resistance to motion (transmission input). The impeller and the turbine are acting as a fluid coupling at this point, and have no torque multiplication effect. At this point, the turbine vanes have reversed the fluid flow.
During torque multiplication, vortex flow actually moves the fluid through the impeller to the turbine, to the reactor, and back through the impeller. It is the acceleration of the vortex movement that results in torque multiplication. Since the vortex flow is greatest at stall condition, the greatest torque boost takes place at this time. As the speed ratio increase, the vortex flow decreases, causing torque multiplication to reduce gradually at about 90% speed ratio, or when the turbine speed is about 9/10 of impeller speed, at this point, there is no longer any torque multiplication. The rotary flow of the fluid is the predominant influence and the converter enters a coupling phase.
In Short, Torque multiplication is GREATEST as soon as the impeller tries to move. As soon as the Engine matches the turbine, torque multiplication ceases. So as long as your on the throttle, and the engine RPMS are increasing, you will be having multiplcation, until the impeller reaches the same speed.