This tool is used for burning Sugar Cane fields before harvesting them to make Rum. It will sometimes explode upon use, causing 5 damage to the user and being destroyed in the process. Also provides 3 squares of permanent yellow light and can light up Empty Coal Basins. Also, when you use it successfully, it won't necessarily disappear. So it's possible to use the same fire bug multiple times. Moreover, it doesn't seem to be able to explode during quests (like Machinery of War Quest).
Each fire bug can burn around 20 fields of sugar cane based on a test done by a player in which he bought 10 bugs and managed to burn 191 fields.