From the QuikClot site

QuikClot brand hemostatic agent speeds coagulation of blood, even in large wounds, through a very simple process: It physically adsorbs the liquid from blood, thereby concentrating the clotting factors and encouraging rapid clotting to stop the bleeding.

QuikClot brand hemostatic agent is different from similar products in that it is chemically inert, and therefore is safe to leave in or on the wound until the patient receives medical treatment. Furthermore, since it contains nothing biological or botanical, there is little or no danger of an allergic reaction.

I don't doubt you were told what you said. And maybe the military has a different forumulation. But cauterize? Doubt it. More likely, anything that will absorb liquid from the blood like that will do bad things to any part of the body that's "wet" (like, inside the lungs). Thus the warning not to breathe it.

Edit:

Here's an article that gives some more information, including:
Potential users are cautioned that QuikClot can cause minor burns and should be applied only after a pressure dressing or tourniquet has failed to stop the flow of blood, she said.

Edit 2:
Aha! Zeolite adsorption is an exothermic reaction (generates heat). From this abstract:
Background: Techniques for better hemorrhage control after injury could change outcome. We have previously shown that a zeolite mineral hemostatic agent (ZH) can control aggressive bleeding through adsorption of water, which is an exothermic process. Increasing the residual moisture content (RM) of ZH can theoretically decrease heat generation, but its effect on the hemostatic properties is unknown. We tested ZH with increasing RM against controls and other hemostatic agents in a swine model of battlefield injury.

So, yeah. Using it will generate heat. Apparently enough for minor burns. But the heat is a side effect... it's not how the blood is actually stopped.

(I love google. I really, really do.)