Air friction is the slowing down force the pendulum experience as it moves though the air.
In front of it the air is piled up; the pendulum pushes it out of the way - with the air pushing back.
Behind it the air is at a lower pressure than normal and the air rushes in to fill the space the pendulum has left.
The kinetic energy of the pendulum is transfered to the kinetic energy of air currents - which in turn is soon dissapated as the air currents themselves branch into smaller and smaller eddies.
The end result is a slight increase in the speed of the air molecules - or looking at it another way; a slight increase in air temperature.
The pendulum's kinetic energy has been transformed to heat.
Kinetic theory of gases
Entropy
Turbulence