On Fire is a damage over time state that is usually applied by Commandos with Flamethrowers, but can also be applied by a Combat Medic. When On Fire, players or mobs take decent damage in addition to wounds, depending on the fire's strength. In the Combat chat window, lines detailing fire damage will be in orange (as are lines detailing bleeding damage). Jedi also using fire saber crystal like Lava lightsaber crystal or Sunrider's Destiny will also proc. Sunrider's Destiny is known to proc "On Fire" more then any other fire element crystal in the game.
A Doctor can cure this state with the Extinguish Fire ability. It can also be cured by running into a body of water.
Ithorian Mist and Trimpian are foods that will increase Fire Resistance, as well as absorb some of the fire damage.