The engine is "on fire" when running normally, as said above when the internal airflow is disrupted by a fault / minor damage it can cause a surge or stall of the engine forcing unburnt fuel out the back or the front sometimes where it's seen burning.
An engine fire indicated in the cockpit is indicated by excessive temperature outside the engine but inside the cowl, here
Photos: Boeing C-17A Globemaster III Aircraft Pictures | !!!!!!!!!!!!!!