The development of heavy oil reservoirs with edge-water presents significant challenges during pure steam flooding (PSF), including steam override, severe channeling, limited displacement/sweep efficiency, and water invasion. To address these issues, multi-component composite steam flooding (MCCSF) was proposed as an improved steam flooding (SF) method. This study introduced a novel three-dimensional (3D) physical simulation approach that accurately replicated the recovery process in edge-water reservoirs. Additionally, a new similarity criterion number was proposed to characterize edge-water energy conversion. Then, comparative experiments (Exp. A: PSF; Exp. B: MCCSF) were conducted to elucidate the advantages and enhanced oil recovery (EOR) mechanisms of MCCSF. Results demonstrated that MCCSF effectively accelerated the thermal connection between wells, mitigated steam override, and improved steam thermal utilization. Compared with PSF, MCCSF achieved higher peak oil production rate and longer stable production stage. In heterogeneous reservoirs with structural dip, MCCSF generated a more uniform steam chamber and reduced the performance gap between higher and lower wells. Post-displacement oil saturation in the middle and upper main layers was typically 7%–10% lower under MCCSF than under PSF. Furthermore, MCCSF significantly suppressed the degree and extent of edge-water invasion in the lower reservoir zones. The final oil recovery factor of MCCSF reached 55.37%, representing an 11.71% improvement over PSF. This study established a scalable laboratory methodology and revealed the coupled displacement mechanisms of steam–gas–chemical system under edge-water conditions, offering both theoretical insights and experimental support for optimizing thermal recovery in heavy oil reservoirs.