the fire damage entry in the phoenixpedia reads as follows:
"a weapon with fire damage will add 40 fire damage value to the target. at the start of the victim’s turn, the fire damage is applied to each body part, minus the armor value. then the fire damage value will reduce by 10.
fire damage value cannot go above 40, even with multiple strikes.
A character standing in a tile that is on fire will suffer the fire damage value of the tile. this will be between 10 and 40. "
as I am reading this, I cannot say that it ever states it shreds armor, or alters the targets armor value in any way…I can say that it states that it applies its damage to all body parts, “minus the armor value” my testing has confirmed that it does just that…it applies its damage to all bodyparts, but the damage is reduced by the armor of that bodypart.
my testing has also shown me that it applies the highest amount of damage it could do to a body-part to the general HP pool of the unit that is on fire. so in effect a unit with 40 fire 30 bleed could take 70 damage…if he had at least 1 bodypart that had 0 armor.
for a use, I have found incendiary damage most effective to de-limb targets that have little armor on hard to hit key limbs (arms, head). it is more suitable to cripple, rather then kill a target with its relatively low damage (40 pnts) compared to simply shooting the target. as fire damage can cause excessive limb damage fast, it will frequently also cause additional bleeds on targets.
note that I test because not everything in the phoenixpedia is correct (viral entry is a good example, as it states it ticks at the start of the victim’s turn…but it actually ticks at the end of the targets turn), I do not know if the first sentence of the fire damage entry is correct…as it states all fire weapons will apply 40 fire damage…and they do by default…but I don’t know how they interact with damage penalties…only that they don’t benefit from damage bonuses.
I also found out that a fairly large chunk of the techs you get, don’t do what they say they do…most of the + dmg% to type (vivisections) actually seem to do nothing atoll.
I hope this makes it slightly less confusing for you.