I applied it to a crossbow bolt and promptly forgot about it, only to see it work once during a bandit encounter, causing small fires in the grass where they hit.
At first I thought it was just a darker dust cloud that lasted a little longer, but sure enough, it was a small, brief fire.
From what I can tell it's meant to be applied to missile weapons in order to cause damage to the siege engines. Check ballista_projectile_burning fora decent reference.
I also only used the "missile" physics material on the bolt, so maybe using a flaming material such as the one in ballista_projectile_burning will cause it to work with more regularity. Or maybe it's only enabled on sieges and that one mission was accidentally seen as a siege. I...