I'm just enough of a pyromaniac and a science geek to want to try this.
How To Make Fire Balls - video powered by Metacafe
It looks like the way it works is the cotton and thread soak up the lighter fluid but don't let it out -- the ball is wound tightly enough to not let oxygen in, and only allows the lighter fluid itself to burn. An excellent demonstration of combustion, and something I really want to try. (Outside, on a non-flammable surface at first, of course!