Easy. Particle system. Flammable objects have a constant boolean for flammability set to True, then another boolean which dictates if the object is on fire. If true spawn a particle system on them to give it an effect which makes it look like its on fire. If a flaming object collides with another, then set that object on fire. You may want to spread the flame only after the objects have made contact for a certain duration, or all connected flammable objects would light instantly.
I've done something similar with the Love2D Engine