Why does fire have a blue line beneath it?

The blue squiggly line is appearing because you are using a global variable where it is not needed. Put the local keyword and you should be fine:

function lightonfire(part)
    print("Going to light this part on fire:")
    print(part.Name)

    local fire = Instance.new("Fire")
    fire.parent = part
end

Remember, a blue squiggly line means a warning and not an error. A warning will not stop the code from running. Think of it as a suggestion on what you should do as a best practice.

A global variable is a variable that can be accessed from all parts of the script. A local variable is a variable that can be accessed in the scope it was defined in.

A scope is a region of a script where a variable can be accessed.

Consider the example here:

local c = 5
if c == 5 then
    local a = 4
    global = 3
end
print(c) --prints 5
print(a) --prints nil
print(global) --prints 3

The reason a prints nil is because the variable defined in the if statement is local and can only be accessed inside the if statement (which is the scope).

The reason c prints 5 is because it was defined outside and thus its scope encompasses the entire script.

The global variable prints 3 and not nil because it is a global variable and is not limited to the scope it was defined in. Notice that a global variable does not have a local keyword in the declaration.