There's a remote chance that you have a direct injection engine, some of which are not equipped with pre-heat. But I sorta think you have indirect injection. If true, there are two basic types of pre-heat; glow plugs, and manifold heater. With the glow plug system, there's one plug per cylinder. It looks like a real skinny spark plug, and is screwed into threads in the cylinder head. Your engine is likely too old for direct injection, so look for them sticking out of the cylinder head on the same side as the fuel injectors. They'll probably be poking out at an angle. If you have the manifold heater type (also called a flame heater or intake heater), there's only one heat source. But the give away is that there's also a fuel source.
With glow plugs, the HEAT position simply sends electricity to ground through the plugs. The internal resistance makes them hot enough to assist compression ignition. With a manifold heater, the HEAT position energizes one glow source in the manifold which in turn heats the air around it. As soon as you go from HEAT to START, intake vacuum sucks both fuel and hot air into the cylinder. In some designs, HEAT actually starts a little fire in the intake, which vacuum then sucks into the cylinder. Either way, the hot/flaming air entering a cold diesel cylinder is what helps get them started.
Glow plug circuit starts at the HEAT position, then one wire to the engine compartment. That wire then splits to 2 or 3 or 4 individual glow plugs by either more wire - or by a copper buss bar. Manifold heater circuit also starts at the HEAT position, then one wire to the engine compartment. But one only. Secondarily there's a fuel source to the manifold. Hopefully with this description you can determine which system you have.
//greg//
