Tuning by temp is a good way to avoid running too rich or running too lean. If you're running too rich, you may flood the engine and it will die (stopping or off throttle), not make run time (i.e. run out of fuel before an end of a race) and performance will suffer (you'll be slower). If you're running too lean, you may starve the engine on full throttle or overheat it to the point of causing damage.
Looking for smoke, listening to the rpm and watching your car is a good way to gauge performance of your engine, but until you're experienced enough to know the difference between the different type of engines you may run, it's hard to figure out if you're in the intended powerband of the engine.
An overheated engine makes a certain sound and by that time, it's really time to pull the car off the track and let it cool down before causing any damage or further damage.
As has been said, always check your temp for reference to make sure you're not going to blow it up by overheating it. Also remember that you have to let the engine warm up for a while before it's at operating temperature. For our 20sec per lap track, when I'm tuning the engine, that means checking the engine every 3, 6 and 9 laps - or every 1, 2 and 3 minutes. You can use these temps for reference when you're warming up for a race to determine if you need to make any small adjustments just before a race. I also check the temp any time I pull the car off the track and definitely at the end of the race.
During the course of the day, the environmental conditions will change (temp/humidity) and you'll have to do some fine adjustments. Using temp as a reference is a good way to figure out if you're engine is still well tuned or has changed to running too lean or too rich.
I always tune by listening to the engine and checking the temp for reference. If it's below a certain temp, I always lean it and if it's above a certain temp, I always richen it.
Hope this helps.