Many protoplanetary disks exhibit annular gaps in dust emission, which may be produced by planets. Simulations of planet-disk interaction aimed at interpreting these observations often treat the disk thermodynamics in an overly simplified manner, which does not properly capture the dynamics of planet-driven density waves driving gap formation. Here we explore substructure formation in disks using analytical calculations and hydrodynamical simulations that include a physically-motivated prescription for radiative effects associated with the planet-induced density waves. For the first time, our treatment accounts not only for cooling from the disk surface, but also for radiation transport along the disk midplane. We show that this in-plane cooling, with a characteristic timescale typically an order of magnitude shorter than the one due to surface cooling, plays a critical role in density wave propagation and dissipation (we provide a simple estimate of this timescale). We also show that viscosity, at the levels expected in protoplanetary disks ($\alpha \lesssim 10-3$), has a negligible effect on density wave dynamics. Using synthetic maps of dust continuum emission, we find that the multiplicity and shape of the gaps produced by planets are sensitive to the physical parameters---disk temperature, mass, and opacity---that determine the damping of density waves. Planets orbiting at $\lesssim 20$ au produce the most diverse variety of gap/ring structures, although significant variation is also found for planets at $\gtrsim 50$ au. By improving the treatment of physics governing planet-disk coupling, our results present new ways of probing the planetary interpretation of annular substructures in disks.