Heavy oil reservoirs are often characterized by high viscosity and poor mobility, which is more complex with the presence of bottom water. The conventional vertical well development method has low oil recovery efficiency and limited controlled reserves of a single well. In addition, water cut can increase dramatically when the edge-bottom water breaks through. Horizontal well and CO2 huff-n-puff is an effective alternative development model for heavy oil reservoirs. This development method makes efficient use of CO2 and accords with the “Carbon Capture, Utilization, and Storage (CCUS)”. The horizontal well can increase the drainage area. The dissolution of CO2 improves the mobility of crude oil and increases formation energy. In this paper, we established numerical simulation models based on the Liuguanzhuang oilfield in Dagang. The characteristics and producing rules of the horizontal well and CO2 huff-n-puff development in the heavy oil reservoir were studied. The results show that the production characteristics of horizontal well and CO2 huff-n-puff were similar to Steam-Assisted Gravity Drainage (SAGD). CO2 forms a viscosity reduction area above the horizontal well and the heavy oil flows into the wellbore due to gravity after viscosity reduction. The CO2 huff-n-puff can effectively enhance the production area of horizontal wells compared with the depletion development. However, the improvement in the production area gradually decreased as CO2 huff-n-puff cycles continued. There was a boundary of production area against the horizontal well, with the main production of heavy oil occurring at the upper and either end of the horizontal well. The CO2 huff-n-puff has a restraining effect on the edge-bottom water, which is confirmed via the proposed theoretical model.