Fire is a foreground layer tile which can overlap actual blocks, similar to water. It was added on the Firefighter Update.
While a fire can spread to the other blocks, there is a limit of 150 fire per world. Though fire can not physically be obtained, a Pocket Lighter or Eldritch Flame can be used to create it. Fire can not destroy any kind of blocks. A Fire Hose, Water Balloon, or a Water Bucket can be used to put the fires out, but a Firehouse can be placed to stop all fires in the world altogether.