Sauce – queso (the sauce/dip)? Is it short for Chile con Queso

US : jam/jelly/preserves/etc

In the US, there are specific definitions from the Food & Drug Administration on what can be labeled as jam, jelly, etc.

From CookingLight.com, but preserved here in case of link rot:

• Jelly is a clear, bright product. It is generally made by cooking fruit juice and sugar with pectin as a jelling agent and lemon juice as an acid to maintain a consistent texture. Jelly is firm and will hold its shape (it 'shakes'). Generally, jelly contains no pieces of fruit, although specialty jellies, like pepper jelly, may include pieces of jalapeño or other pepper.

• Jam is made from crushed or chopped fruit cooked with sugar, and often pectin and lemon juice. Jam can be a purée of fruit or have a soft pulp, but it does not contain chunks of fruit.

• Preserves are fruit cooked with sugar to the point where large chunks of fruit or whole fruit, such as berries, are suspended in a syrup base. The texture of preserves is not smooth like jelly or jam.

• Marmalade is a soft jelly, often citrus-based, that includes both the flesh and peel of the fruit suspended throughout the jelly base. The bitterness of the peel offsets the sweetness of the jelly.

• Conserve is a mixture of more than one fruit, often with added nuts and raisins, that is cooked until it becomes thick. It is used as a spread for breads, pastries and meats, and in the latter use is closest to chutney.

• Chutney is a spiced condiment of Indian origin (chatni is the Hindi word for strongly spiced) made of fruit or vegetables. It is typically served as an accompaniment to food, not as a spread. The spice level can range from mild to hot, and the consistency from a fine relish to a preserve or conserve. Fruit chutney consists of chopped fruit, vinegar, spices and sugar cooked into a chunky sweet-tart-spicy mix: according to one explanation, it 'blurs the Western distinction between preserves and pickles.'

• Fruit Butter, such as apple butter or prune butter, is fruit purée or pulp combined with sugar, lemon juice and spices, slowly cooked down to a smooth consistency. The 'butter' refers to its spreadability: there is no actual butter in the product.

• Fruit Curd is a creamy spread made with sugar, eggs and butter, generally flavored with citrus juice and zest.

• Fruit Spread is generally a reduced-calorie product made with fruit juice concentrate and low-calorie sweeteners replacing all or part of the sugar.

From what you're describing, I think the cheese (or cheese-like substance, in this case) 'broke' ... that is, the oil separated out of it.

I'd recommend:

1. Don't melt it at full power
2. Stir it multiple times during melting
3. Melt the cheese (or "cheese-food") seperately, then add the tomatoes, so the tomatoes don't get hot, causing uneven heating.

I'm not sure if there's a good way to recover cheese once it's broken. Some starch will help keep dairy from breaking in the first place, but I don't think it'd help you in this particular case.