What is done with the sensed temperature signal?

The sensor signal is used as feedback to the laser power control circuit. After one product/project that did not work out, I have only used laser packages that had the control system integral. That was the very best engineering choice ever. It avoided both the optical assembly cost and the power control circuit cost, avoided any calibration time cost, and improved quality by eliminating alignment process labor and cost.

 

So does the laser current need to change with temperature for a constant output power?

 

The forward drop tends to change with temperature and so to keep the power under control the voltage must be adjusted. That avoids thermal destruction.