We study the combined effects of relaxation, tidal heating and binary heating on globular cluster evolution, exploring the physical consequences of external effects and examining evolutionary trends in the MilkyWay population. Our analysis demonstrates that heating on circular and low-eccentricity orbits can dominate cluster evolution. The results also predict rapid evolution on eccentric orbits either due to strong relaxation caused by the high densities needed for tidal limitation or due to efficient bulge shocking of low density clusters. The combination of effects leads to strong evolution of the population as a whole. For example, within the solar circle, tidally-limited 105M⊙ clusters lose at least 40% of their mass in 10 Gyr. At high eccentricity most of these clusters evaporate completely. Bulge shocking disrupts clusters within 40 kpc which have less than 80% of their mass within their pericentric inner Lagrange point. Our results are consistent with suggestions that the shape of the cluster luminosity function results from evaporation and disruption of low mass clusters; they further predict that the net velocity dispersion of the cluster system in the inner Galaxy has decreased with time. Preliminary constraints on formation models are also discussed. We conclude that the observed cluster system has largely been shaped by dynamical selection.