It is like the chaff that John the Baptist spoke of being burned with unquenchable fire . It is from such images as these that we have the traditional picture of hell. That is a complex question, and not the main point of the passage we are considering today. The basic idea is that whatever does not go on into new life in the Kingdom will be destroyed. It has no future.
Fire is a cleansing agent.
This applies to changes within ourselves. That is how Jesus was to be tested in the baptism of his death. All of us who share in his risen life are united with him also in his death. So just as water cleans by washing away the dirt of the old life, so fire also cleans. It is a matter of new life replacing an old way that ends in death.