Confusion with relating thermal resistance temperature, and electrical power and heat sinking
What should be the way of thinking here?


Due to the θJC the heat flux moving from the junction to the case raises the temperature.  Increase either thermal resistance or heat flow and temperature rises. 

A low θJC is better than low.

There are multiple thermal resistances that may be specified. The most common are  


θJC
θJA


θJC is the thermal resistance from the heat generating junction(s) to the case or thermal solder pad of the device package.  

θJA is the thermal resistance from the heat generating junction(s) to ambient air.  This includes the PCB and or heatsink.

θJC is a function of the geometric design of the device and is fixed with minor variation due to manufacturing.  

θJA is a reference for comparative purposes. Because θJA includes the PCB and heatsink design, this parameter is measured using standardized test conditions typically specified by JEDEC in the EIA/JESD51 documents.  

Thermal design terminology is explained in this document: Semiconductor and IC Package Thermal Metrics

θJC is what you use to estimate the junction temperature (TJ) of the device. TJ is mostly a factor of PCB design and secondly the device package design which is represented by θJC. Power dissipation is a very minor factor.
Source: Semiconductor and IC Package Thermal Metrics

This Simplified Thermal Resistance Model from 
Thermal Design By Insight, Not Hindsight
 shows the various parameters of interest in PCB thermal design.  It also gives the basic calculations  to consider for thermal design. 







Other references: 

The Effect of PCB Design on the Thermal Performance of SIMPLE SWITCHER Power Modules

Understanding Thermal Dissipation and Design of a Heatsink