The Fire Junk is a cheap ship with a high attack, high speed and a great line of sight, the highest in the game for a ship, even higher than a Monitor's. But it has low hit points, no range and it can be used only once. It's mainly used to quickly destroy ships, especially fragile ones and ones that transport units. It's also useful against land units and buildings directly adjacent to the water, especially when the enemy has them in tight bunches, allowing multiple kills at once. They can also prove useful in shore battles, destroying Docks quickly and preventing the enemy from training a fleet.
One of the Fire Junk's weaknesses is that against human players, if the enemy ship flees, the Fire Junk will detonate too early.
Virtually everything on a tall ship is flammable, from wooden planks and tar that seals seams to greased ropes and canvas sails, to gunpowder - especially gunpowder! Black powder ships, also called fireships, were ships set afire and allowed to drift (or were sometimes piloted by a minimal crew, who escaped before impact) into enemy fleets with the purpose of setting them afire and blowing them up. Fireships were particularly nasty when sailed into harbors to destroy immobile ships at anchor.
Fireships were used by the English Royal Navy against the larger and more powerful Spanish Armada. Unable to find a proper port or deep mooring, the Spanish fleet congregated in a defensive arc, into which the British sailed a half-dozen fireships, scattering and confusing the Spanish fleet. This allowed the smaller English fleet to engage the Spanish Armada on a more even footing.