Silly sounding question, I know. My character recently got in trouble for lighting a fire in town...I was warned it could burn down buildings and trees and stuff...Does this actually happen? I went out into plains and attempted to burn down a tree by placing fire all around it...and nothing happened. Does fire actually burn, or were they just role-playing?
You are asking about game mechanics vs roleplay. In game, yes fire burns and your character can burn unless mage protected, or other circumstances prevent it. Your character can also set things on fire. Game mechnics-wise.. possibly.
The possibility of actually starting a fire are pretty small, but they're there. And unless you're quick with your buckets of water you can set the town on fire.