The screen edge utility is called "Electric Borders" in KWin's Workspace class. There are through the enum ElectricBorder (kwinglobals.h) eight borders defined: one for each side and one for each corner.
The electric borders are windows kept above all other windows. KWin watches for EnterNotify and ClientMessage XEvents on the electric border windows in the global event handler Workspace::workspaceEvent (events.cpp:228) which calls Workspace::electricBorderEvent (workspace.cpp:2621). EnterNotify is used to test whether the mouse entered a border, ClientMessage is used for the D&D case, though this is mostly broken (e.g. using D&D to Present Windows does not work/crashes the application you drag from).
ElectricBorders need to be reserved and unreserved. This can be done from a KWin Effect (effect.cpp:962), though it does not have any information about which KWin effect reserves the border. Several effects could reserve the border. Some electric borders are reserved cause of some settings to e.g. lock screen or activate dashboard.
Most of the electric border related code is in workspace.cpp about line 2325. Show/hideElectricBorderWindowOutline() are not related to electric borders, but to Quick Tiling. There is also some code in layers.cpp. In Workspace::propagateClients the WIds of the electric borders are added to the stacking order and there is Workspace::raiseElectricBorderWindows which is needed to re raise the windows if a fullscreen effect window is opened above.
Notifying effects, switching desktop and so on is done from Workspace::checkElectricBorder()
All electric border related code should be moved out of Workspace into an own class, e.g. ElectricBorder or more generic ScreenEdge. (Un)Reserving is probably not needed any more, all edges need to be reserved to inform other applications about triggered edges. Desktop switching while moving can probably be dropped from screen edge handling and should be merged with Quick Tiling which does not use electric borders.