There are many ways to recreate fire in PhotoShop, this tutorial will show one of them. We are going to create text that looks like it is engulfed in flames..
Download the .PSD here
First, we start of with a plain black background and a text layer.

Next, we want to Rasterize the text layer so we can modify it. Right-click the text layer and choose Rasterize Type or Rasterize Layer. Next, goto Filter > Stylize > Wind, and choose Wind, From the Left. Once applied, press Ctrl+F to repeat. Then goto Filter > Stylize > Wind again and choose From the Right. Press Ctrl+F to repeat. You should have something like this:

Now we want to do the same to the top and bottom, so we will go Image > Rotate Canvas > 90° CW. Then we will repeat the above steps, both Left and Right. You should have something like the following:

Now we can flip our canvas back (Image > Rotate Canvas > 90° CCW) and then apply a Gaussian Blur (Filter > Blur > Gaussian Blur) of between 1 and 3, depending upon the size of your image. I used 2.0 for this example. Then goto Filter > Distort > Ripple and choose 100%, Medium. Or more if your image is large enough.

Next, we will add some color. Goto Image > Mode > Grayscale, and Flatten or Merge if it asks. Then goto Image > Mode > Indexed Color, and Flatten if it asks you to. Then goto Image > Mode > Color Table, and choose Black Body. This should give us something like this:

Finally, goto Image > Mode > RGB Color and add a new text layer, the same as the original. Then line it up with the flames, and perhaps change the color:

You may want to change the text slightly by doing the following. Goto the Layer Styles of the Text Layer by double-clicking it and choose Inner Glow. Set the color as the bright yellow of the flames. I also added the following gradient as a Gradient Overlay.

Click to enlarge.
This is the outcome of this tutorial, nice flame-engulfed text.

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