While it may seem like a poor weapon, it actually works very well in combination with other fire starter's like Firecrackers, Trap Bombs, and Molotov Cocktails. Because the fire stacks with other sources, it can be used to very quickly burn down stronger enemies like Goons and Demolishers. It can also be used to pre-apply a flammable substance to be used as a trap later against more aggressive zombies like Virals.
Unlike its conductive counterpart, Flammable Liquid will stun infected and/or humans within its blast radius, as if they had been struck by a weapon... however, the damage applied seems minimal if not none. In addition, it appears that the item attract Virals upon impact.